(Answered) Return on investment roi and residual income ri consider

Finance

Return on Investment (ROI) and Residual Income (RI) Consider the following data (in millions) from Midwest Financial, Inc., which has two main divisions: mortgage loans, and consumer loans:

	Mortgage Loans	Consumer Loans
Average total assets	$2,000	$20,000
Operating income	$400	$2,500
ROI	20%	12.5%

Required

1. Based on ROI, which division is more successful? Why?

2. Midwest uses RI as a measure of the financial performance of its divisions. What is the residual income (RI) for each division if the minimum desired rate of return is: (a) 10 percent, (b) 15 percent, and (c) 20 percent? Which division is more successful under each of these rates?

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