Return on Investment, Residual Income for a Service Company

H&R Block Inc. provides tax preparation services throughout the United States and other parts of the world. These services are provided through two segments: company-owned offices and franchised operations.

Recent financial information provided by H&R Block for its company-owned and franchised operations is as follows (in millions):

		Company-Owned		Franchised Operations
Revenues		$2,651		$ 335
Income from operations		617		86
Total assets		3,930		586

a. Use the DuPont formula to determine the return on investment for each business divisions. Round whole percents to one decimal place and investment turnover to two decimal places.

Division	Return on Investment
Company-Owned	%
Franchised Operations	%

b. Determine the residual income for each division, assuming a minimum acceptable income of 15% of total assets. Round minimal acceptable return to the nearest million dollars.

Division	Residual income
Company-Owned	$millions
Franchised Operations	$millions

c. The Franchised Operations (FO) segment has the lowest return on investment, which is mainly the result of a lower investment turnover