Reference no: EM132915306

Problem 1: The Heritage Hotel group wants to achieve an overall ROA of 18%, and has set an objective for the General Managers to maximise residual income from their yearly hotel operations. At the Heritage Hotel in Sydney, there is an opportunity to acquire the gym facility that is currently operating privately on the hotel property. The existing gym business earns $88,000 in profit a year, and it would cost the hotel $600,000 to acquire the gym's assets. If the hotel acquires the gym, it is expected the hotel would add the existing gym business' profit to the $1,000,000 in profit that the hotel is already earning. Without the gym, Sydney Heritage Hotel has an asset base of $5,500,000. How much would residual income increase or decrease if the GM went ahead with the acquisition of the gym business?