Question
Stu, Co., has two divisions that are expected to earn the same required rate of return. Division 1 has net income of $ 20,000 and
Stu, Co., has two divisions that are expected to earn the same required rate of return. Division 1 has net income of $ 20,000 and the residual income of $ 4,000. Division 2 has net income of $ 10,000 and the residual income of $ 5,000. Division 1's total assets amount to $ 200,000 which includes cash of $ 20,000, inventory of $ 40,000, accounts receivable of $ 25,000, net plant and equipment of $ 75,000, developed land of $ 30,000 and an investment in the stock of another company of $ 10,000. How much is Division 2' return on investment?
a) 16.00%
b) 20.00%
c) 18.82%
d)10.00%
None of the above
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