Q.
Aysha Development corp. has three divisions. Chosen financial information (in millions of rials) for 2003 and 2004 follows:
Net Income Revenues Total Assets
Division 2003 2004 2003 2004 2003 2004
A 1,000 1,200 5,000 5,400 4,500 4,800
B 150 175 7,500 8,000 3,500 4,000
C 250 300 2,000 2,200 3,000 3,500
Required:
a. Determine the 2003 ROI for each division
b. Determine the 2004 ROI for each division
c. Rashid, manager of Division A, is supposing a proposal to invest 250 million rials for modern equipment. The estimated supplementary net income prepared by the investment would be 40 million rials.
Aysha has a 12 % imputed cost of capital need for each division. Would Rashid be otivated to invest in the equipment if the measure of performance is:
1) Residual income
or
2) Return on investment