Reference no: EM13351569

Q.

Aysha Development corp. has three divisions. Chosen financial information (in millions of rials) for 2003 and 2004 follows:

                    Net Income                Revenues              Total Assets    

Division       2003     2004               2003      2004         2003       2004

A                1,000     1,200               5,000     5,400       4,500      4,800

B                150         175                  7,500     8,000      3,500      4,000

C                250         300                  2,000     2,200      3,000      3,500

Required:

a. Determine the 2003 ROI for each division

b. Determine the 2004 ROI for each division

c. Rashid, manager of Division A, is supposing a proposal to invest 250 million rials for modern equipment. The estimated supplementary net income prepared by the investment would be 40 million rials.

Aysha has a 12 % imputed cost of capital need for each division. Would Rashid be otivated to invest in the equipment if the measure of performance is:

1)  Residual income

or

2)  Return on investment