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Calculate the return on Investment for Gibson

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Question - Gibson Home Maintenance Company earned operating income of $6,888,500 on operating assets of $59,900,000 during Year 2. The Tree Cutting Division earned $1,164,500 on operating assets of $6,850,000. Gibson has offered the Tree Cutting Division $2,140,000 of additional operating assets. The manager of the Tree Cutting Division believes he could use the additional assets to generate operating income amounting to $413,020. Gibson has a desired return on investment (ROI) of 9.50 percent.

Required -

a. Calculate the return on Investment for Gibson, the Tree Cutting Division, and the additional investment opportunity.

b. Calculate the residual income for Gibson, the Tree Cutting Division, and the additional investment opportunity.

Reference no: EM132600635

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