Q2. Gideon Corp. is a reinsurance and financial services company. Gideon strongly believes in evaluating the performance of its stand-alone divisions using financial metrics such as ROI and residual income. For the year ended December 31, 2019, Gideons CFO received the following information about the performance of the property/casualty division:

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Sales Revenues	$ 900,000
Operating Income	$ 225,000
Total Assets	$1,500.000

Current Liabilities	$ 300,000
Debt (Interest Rate 5%)	$ 400,000
Common Equity (Book Value)	$ 500,000

For the purposes of divisional performance evaluation, Gideon defines investment as total assets, and income as operating income (that is, income before interest and taxes). The firm

pays a flat rate of 25% in taxes on its income.

Required:

1. What was the net income after taxes of the property/casualty division? (4 marks) showing working

2. What was the divisions ROI for the year? (4 marks) showing working

3. Based on Gideons required rate of return of 8%, what was the property/casualty divisions residual income for 2019? (4 marks) showing working