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Rate of Return on Investment, Residual Income for a Service Company Starwood Hotels & Resorts Worldwide provides lodging services around the world. The company is
Rate of Return on Investment, Residual Income for a Service Company Starwood Hotels & Resorts Worldwide provides lodging services around the world. The company is separated into two major divisions. Hotel Ownership: Hotels owned and operated by Starwood. Vacation Ownership: Resort properties developed, owned, and operated for timeshare vacation owners. Financial information for each division, from a recent annual report, is as follows (in millions): a. Use the DuPont formula to determine the return on investment for each of the Starwood business divisions. Round interim calculations to two decimal places. Round your final answers to one decimal place. Hotel Ownership % Vacation Ownership % b. Determine the residual income for each division, assuming a minimum acceptable income of 5% of total assets. Round minimal acceptable return to the nearest million dollars. Enter your answers in millions of dollars. Use the minus sign to indicate a negative residual income. Hotel Ownership $ millions Vacation Ownership $ millions segment has the weakest return on investment, which is mainly the result of a weak investment turnover. Decision on Transfer Pricing Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $210 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $160 per unit. a. If a transfer price of $180 per unit is established and 60, 000 units of materials are transferred, with no reduction in the Components Division's current sales, how much would XPort Industries' total Income from operations increase? $10, 800, 000 b. How much would the Instrument Division's income from operations increase? $ 1, 200, 000 c. How much would the Components Division's income from operations increase? $ 1, 800, 000
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