Mathematics · Financial Ratios and Performance
Melton Co evaluates its divisions using Return on Investment (ROI) and Residual Income (RI). The Mowbray division has net assets of $24m at 30 September 20X4. In the year to 30 September 20X4, it earned an operating profit of $3.6m. The appropriate cost of capital for the division is 12%. Company policy uses year-end capital for ROI and RI calculations. During the year, it paid interest of $0.6m. What are the ROI and RI for the year?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1ROI: 15.0%, RI: $3.00m
- 2ROI: 15.0%, RI: $0.72m✓
- 3ROI: 12.5%, RI: $0.72m
- 4ROI: 12.5%, RI: $0.12m
Correct answer
ROI: 15.0%, RI: $0.72m
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