Padstow Fabrics Comapny has two retail division, which reported the following results for last year:

Finishing Division Dressmakinf Division

Profit $900 000 $200 000

Average invested capital $6 000 000 $1 000 000

ROI 15% 20%

Required:

1 Which was the more successful division? Think carefully about this, and explain yoir answer.

2 Calculate each divisionn's residual income under each of the following assumptions about the firm's minimum required rate of return

(a) 12 per cent

(b) 15 per cent

(c) 18 per cent