Generic Motors Corporation has two divisions, Kadillack and Chevrolay. Their performance for last year is as follows.
| Kadillack | Chevrolay | |
| Investment(operating assets) | $200million | $800million |
| Profit | $34million | $108million |
The required rate of return (cost of capital) for Generic Motors is 10% a year.
Required:
a) What isthe return on investment(ROI) for each division?
Kadillack ROI =%
(enter say 9.5% as 9.5, not as 0.095 and not as 9.5%)
Chevrolay ROI =%
Which division performs better, based on ROI? (1=Kadillack, 2=Chevrolay)
b) What is the residual income (RI) for each division?
Kadillack RI = $million
(enter say $3.52 million as 3.52, not as 3,520,000)
Chevrolay RI = $million
Which division performs better, based on RI? (1=Kadillack, 2=Chevrolay)
c) Which of the two measures (ROI or RI) would you use to decide which division performs better? Briefly explain your reasons.