Return on Investment and Residual Income The Emergency Medical Services Company has two divisions that operate independently of one another. The financial data for the year 20X5 reported the following results:

North South

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,000,000 $2,500,000

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000 550,000

Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,000 375,000

Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 4,400,000

The companys desired rate of return is 15%. Income is defined as operating income.

a. What are the respective return-on-investment ratios for the North and South divisions?

b. What are the respective residual incomes for the North and South divisions?

c. Which division has the better return on investment and which division has the better residual income figure?