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Aysha Development corp. has three divisions. Selected 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. find out the 2003 ROI for each division

b. find out the 2004 ROI for each division

c. Rashid, manager of Division A, is considering a proposal to invest 250 million rials for modern equipment. The estimated additional net income generated by the investment would be 40 million rials. Aysha has a 12 percent imputed cost of capital requirement for each division. Would Rashid be motivated to invest in the equipment if the measure of performance is:

1) Residual income

2) Return on investment

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M944630

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