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Generic Motors Corporation has two divisions, Kadillack and Chevrolay. Their performance forlast year is as follows. Kadillack Chevrolay Investment (operating assets) $200 million $800 million
Generic Motors Corporation has two divisions, Kadillack and Chevrolay. Their performance forlast year is as follows. Kadillack Chevrolay Investment (operating assets) $200 million $800 million Profit $30 million $100 million The required rate of return (cost of capital) for Generic Motors is 10% a year. Questions: - What is the return on investment (ROI) for each division? (Round Chevrolay's ROI to one decimal.) Kadillack's ROI = %, and Chevrolay's ROI = %. - Which division performs better, based on ROI? . Enter K for Kadillack or C or Chevrolay. - What is the residual income (RI) for each division? Kadillack's RI =$ million, and Chevrolay's RI =$ million. Which division performs better, based on RI? . Enter K for Kadillack or C or Chevrolay. A note for you : RI is a measure that is sensitive to size, that is, a larger-sized business tends to have a higher RI, like Chevrolay in this example. So, in a situation when you compare two businesses in very different sizes, it is probably better to use ROI to evaluate across these two
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