Homework Answers
return on investment = operating income / operating assets *100
| return on investment | |
| adams home maintenance company (6415200/59400000)*100 | 10.80% |
| tree cutting division (1,229,980/6,910,000)*100 | 17.80% |
| additional investment opportunity (445,050/2150000)*100 | 20.70% |
residual income = operating income - (operating assets * return on investment)
| residual income | |
| adams home maintenance company | 1,188,000 |
| tree cutting division | 621,900 |
| additional investment opportunity | 255,850 |
working:
AHMC = 6415200- (59400000*8.80%)=>1,188,000
tree cutting division = 1,229,980 - (6,910,000*8.80%)=>621,900
additional investment opportunity = 445,050 - (2,150,000*8.80%)
=>445,050-189,200
=>255,850
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