Question

The Campus Division of All-States Bank has assets of $1,800 million. During the past year, the division had profits of $225 million. All-States Bank has a cost of capital of 4 percent. Ignore taxes.

Required:
(a) Compute the divisional ROI for the Campus Division. (Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1)
(b) Compute the divisional RI for the Campus Division. (Enter your answer in dollars, not in millions.)

Answer 1

Answer: (a) 12.5%;

(b) $153 million

Step-by-step explanation:

Given that,

Campus Division of All-States Bank,

Assets = $1,800 million

Division profits = $225 million

Cost of capital = 4 percent

(a) Divisional ROI =
`(Profit)/(Assets)`

=
`(225)/(1,800)*100`

= 12.5%

(b) Divisional RI = Profits - Assets × cost of capital

= $225 million - $1,800 million × 0.04(4%)

= $225 million - $72 million

= $153 million