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Question 8 (Pro Se ACME, Inc. is a seafood restaurant chain that consists of two divisions, the properties division and the food service division.
Question 8 (Pro Se ACME, Inc. is a seafood restaurant chain that consists of two divisions, the properties division and the food service division. The company generally has a low cost of capital and uses a hurdle rate of 8% for investment decisions for both divisions. The invested capital and income for the most recent year are as follows (in $ millions): Invested Capital Income Properties $210.0 $43.5 Food Service 200.0 22.5 ACME, Inc 410.0 66.0 a) (1 points) Calculate: a. the residual income of the Properties division; b. the ROI for the Food Service division b) (1 points) The food service division is considering an acquisition with an income of $2 million and invested capital of 20 million. Assume there are no synergies. Calculate the revised ROI for the food service division if the acquisition is completed. c) (2 points) Assume the division presidents and ACME executives are compensated based on changes in ROI. a. Will the food service division manager want to do this deal? Explain. b. Will the ACME executives want to do this deal? Explain. d) (1 point) Would ACME want to do the deal if residual income was used to evaluate the acquisition? Explain.
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