Problem - Handel Company is reviewing their operational performance. Below is data pertaining to their financials (in millions):
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2014
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2015
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2016
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Handel Company Net Income
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$20.0
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$22.6
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$23.4
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Handel Company Net investment = (Assets - Liabilities)
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$90.0
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$85.0
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$80.0
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Handel Company Total Assets
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100.0
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105.0
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110.0
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Handel calculates ROI using net investment to performance measurement for ROI and Residual Income rather than using Total Assets. Their cost of capital is 10%. All liabilities are from a debt transaction to acquire and run the subsidiary.
Required -
a) Calculate ROI for Handel Company using their present methodology.
b) Calculate ROI for Handel Company using Total Assets.
c) Calculate Residual Income
d) Comment on the subsidiary's performance based on your calculations.