The sales, income from operations, and invested assets for each division of Salem Company are as follows:
Income from Invested
Sales Operations Assets
Division C $4,000,000 $410,000 $3,500,000
Division D 3,500,000 600,000 4,000,000
Division E 2,250,000 780,000 7,000,000
Management has established a minimum rate of return for invested assets of 11%.
(a) Determine the residual income for each division.
(b) Based on residual income, which of the divisions is the most profitable?