Return on Investment (ROI) and Residual Income (RI) Consider the following data (in millions) from Trident Financial, Inc., which has two main divisions: mortgage loans, and consumer loans:
Required
1. Based on ROI, which division is more successful? Why?
2. Trident uses residual income (RI) as a measure of the financial performance of its divisions. What is the RI for each division if the minimum desired rate of return is: (a) 10%, (b) 15%, and (c) 20%? Which division is more successful under each of these rates?
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