On the graph below, lines A-B-C and D-E-F illustrates residual income (measured on the vertical axis in dollars) at various interest rates. Point G is the firm’s cost of capital.

Line ABC represents the residual income of Division X at various interest rates. Line DEF represents the residual income of Division Y at various interest rates.

Based on the graph above, for Division X versus Division Y, is the residual income and ROI for Division X greater than or less than that of Division Y?
Residual income of Division X is greater than the residual income for Division Y Return on investment of Division X is greater than the ROI for Division Y

a. Yes Yes

b. Yes No

c. No Yes

d. No No

D G B %