There are two different hotel chains that you have identified as potential investment opportunities. You are looking for a minimum required rate of return of 8 per cent. As a starting point, you have accumulated some basic information to calculate the return on investment and residual income.

Sales Hotel Aster Hotel Bella

Net operating income $10 000 000 2 000 000

Average operating assets 2 000 000 3 000 000

Required:

Calculate the ROI and residual income for each hotel. Explain the meaning of your calculations.