Question 1(performance evaluation: RI, ROI)

Generic Motors Corporation has two divisions, Kadillack and Chevrolay. Their performance for last year is as follows.

The required rate of return (cost of capital) for Generic Motors is 10% a year.

 

Required:

a) What is the return on investment (ROI) for each division?

    Kadillack ROI = 1 % (enter say 9.5% as 9.5, not as 0.095 and not as 9.5%)
    Chevrolay ROI = 2 %

Which division performs better, based on ROI? (1=Kadillack, 2=Chevrolay) 3

 

b) What is the residual income (RI) for each division?

    Kadillack RI = $4 million (enter say $3.52 million as 3.52, not as 3,520,000)
    Chevrolay RI = $5 million

Which division performs better, based on RI? (1=Kadillack, 2=Chevrolay) 6

 

c) Which of the two measures (ROI or RI) would you use to decide which division performs better? Briefly explain your reasons.

 

 

CourseLover

(12)

Status NEW Posted 20 Dec 2017 08:12 AM My Price 10.00

-----------  ----------- H-----------ell-----------o S-----------ir/-----------Mad-----------am ----------- Th-----------ank----------- yo-----------u f-----------or -----------usi-----------ng -----------our----------- we-----------bsi-----------te -----------and----------- ac-----------qui-----------sit-----------ion----------- of----------- my----------- po-----------ste-----------d s-----------olu-----------tio-----------ns.----------- Pl-----------eas-----------e p-----------ing----------- me----------- on----------- ch-----------at -----------I a-----------m o-----------nli-----------ne -----------or -----------inb-----------ox -----------me -----------a m-----------ess-----------age-----------

Not Rated(0)

• Buy Answer