Triumph Division of Traveling Fantasies, is evaluated based on residual income generated. In the most recent year, the Triumph Division generated a residual income of $2,000,000 and net income of $5,000,000 . The target rate of return for all divisions of Traveling Fantasies is 20%. What was the return on investment for the Triumph Division?
a. 40%
b. 13%
c. 20%
d. 33%
D
(Net Income) - (Target Rate ? Total Assets) = Residual Income
($5,000,000) - (0.20 ? Total Assets) = $2,000,000
(0.20 ? Total Assets) = $3,000,000
Total Assets = $15,000,000
ROI = (5,000,000/15,000,000)
ROI = 33%
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