Response to the following problem:
McMillan Home Maintenance Company (MHMC) earned operating income of $7,200,000 on operating assets of $60,000,000 during 2011. The Tree Cutting Division earned $1,215,000 on operating assets of $6,750,000. MHMC has offered the Tree Cutting Division $2,050,000 of additional operating assets. The manager of the Tree Cutting Division believes he could use the additional assets to generate operating income amounting to $410,000. MHMC has a desired return on investment (ROI) of 10 percent.
Required
a. Calculate the return on investment (ROI) for MHMC, the Tree Cutting Division, and the additional investment opportunity.
b. Calculate the residual income (RI) for MHMC, the Tree Cutting Division, and the additional investment opportunity.