Return on Investment and Residual Income Consider the following data (in millions) fromTrident Financial Inc., which has two main divisions, mortgage loans and consumer loans:[LO 19-1][LO 19-1, 19-2]Mortgage Loans Consumer LoansAverage total assets $2,000 $20,000Operating income $400 $2,500Return on investment (ROI) 20% 12.5%Required1. 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 isthe RI for each division if the minimum desired rate of return is (a) 10%, (b) 15%, and (c) 20%? Whichdivision is more successful under each of these rates?
Return on Investment and Residual Income Consider the following data (in millions) fromTrident Financial Inc., which has two main divisions, mortgage loans and consumer loans:[LO 19-1][LO 19-1, 19-2]Mortgage Loans Consumer LoansAverage total assets $2,000 $20,000Operating income $400 $2,500Return on investment (ROI) 20% 12.5%Required1. 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 isthe RI for each division if the minimum desired rate of return is (a) 10%, (b) 15%, and (c) 20%? Whichdivision is more successful under each of these rates?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Trident Financial Inc., which has two main divisions, mortgage loans and consumer loans:
[LO 19-1]
[LO 19-1, 19-2]
Mortgage Loans Consumer Loans
Average total assets $2,000 $20,000
Operating income $400 $2,500
Return on investment (ROI) 20% 12.5%
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
division is more successful under each of these rates?
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