Question #$1$

A division of a company is a major subcontractor in the Southern California area, and during the year this division had earnings before interest and taxes of $$7$ million. This division has a major investment in machinery, which currently has a book value of $$50$ million. All divisions in this company use an interest rate of $10\%.$

$($note $-$ do not do any averaging$)$

Calculate:

return on investment

$\%$

residual income $

Question #$2$

Calculate the return on investment $($ROI$)$ and residual income $($RI$)$ for the following divisions. Use a required rate of return of $10\%.$

Division:

Red

White Blue

Earnings before interest & taxes $($EBIT$)$ $$8$

$$12,$$$10$ million

Average operating assets

$$50$

$$100,$$$80$ million

Return on investment

$\%$

$\%,\%$

Residual income

$

$