Question

Holly Insurance Company (HIC) earned operating income of $24,000,000 on operating assets of $200,000,000 during 2014. The Automobile Insurance Division earned $4,770,000 on operating assets of $36,000,000. HIC has offered the Automobile Division $4,000,000 of additional operating assets. The manager of the Automobile Insurance Division believes she could use the additional assets to generate operating income amounting to $480,000. HIC has a desired return on investment (ROI) of 10 percent.

Required
a. Calculate the return on investment (ROI) for HIC, the Automobile Insurance Division, and the additional investment opportunity.
b. Calculate the residual income (RI) for HIC, the Automobile Insurance Division, and the additional investment opportunity.



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  • CreatedFebruary 07, 2014
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