Solution-What was the property division residual income

What was the property division residual income

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Reference no: EM132517424

Gideon Corp. is a reinsurance and financial services company. Gideon strongly believes in evaluating the performance of its stand-alone divisions using financial metrics such as ROI and residual income.

For the year ended December 31, 2019, Gideon's CFO received the following information about the performance of the property/casualty division:

Sales Revenues $ 900 000

Operating Income 225 000

Total Assets 1 500 000

Current Liabilities 300 000

Debt (Interest rate: 5%) 400 000

Common Equity (book value) 500 000

For the purposes of divisional performance evaluation, Gideon defines investment as total assets, and income as operating income (that is, income before interest and taxes). The firm pays a flat rate of 25% in taxes on its income.

Required:

Question 1. What was the net income after taxes of the property/casualty division?

Question 2. What was the division's ROI for the year?

Question 3. Based on Gideon's required rate of return of 8%, what was the property/casualty division's residual income for 2019?

Reference no: EM132517424

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What was the property division residual income

Reference no: EM132517424

Reference no: EM132517424

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