The following data pertain to two divisions, A and B, of a large corporation:

Required:
a. Determine the higher ranked division using residual income (with cost of capital or the required rate of return at 10%) as the criterion.
b. Repeat part (a), but using 14% as the cost of capital.
c. How do you explain the conflicting results in parts (a) and(b)?

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Division ADivision B $3,750,000 ,100,000 Investment $31,250,000 ,500,000 Profit