The following data pertain to two divisions, Western and Eastern, of a large corporation. This corporation was

Question:

The following data pertain to two divisions, Western and Eastern, of a large This was established on the East Coast of the United States. It has recently expanded to the West Coast to take advantage of the greater profit potential in the growing western states.

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

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...