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Determine the residual income for each division

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Problem - Rate of return on investment, residual income - Starwood Hotels & Resorts Worldwide provides lodging services around the world. The company is separated into two major divisions:

Hotel Ownership: Hotels owned and operated by Starwood.

Vacation Ownership: Resort properties developed, owned, and operated or timeshare vacation owners.

Financial information for each division, from a recent annual report, is as follows (in millions):

 

Hotel Ownership

Vacation Ownership

Revenues

$5,013

$894

Income from operation

785

136

Total assets

6,728

2,183

Required -

a. Use the DuPont formula to determine the return on investment for each of the Starwood business divisions. Round whole percents to one decimal place and investment turnover to two decimal places.

b. Determine the residual income for each division, assuming a minimum acceptable income of 8% of total assets. Round minimal acceptable return to the nearest million dollars.

c. Interpret your results.

Reference no: EM132687306

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