velue 2000 points The Campus Division of AllStates Bank has

velue 20.00 points The Campus Division of All-States Bank has assets of $2,500 million During the past year, the division had prof ts of $260 millon. All States Bank has a cost of capital of 6 percent. ignore taxe Required: a. Compute the divisional ROI for the Campus Division. (Enter your ans wer as a percentage rounded to 1 decimal place (i.e, 32.1)) I RO b. Compute the divisional RI for the Campus Division (Enter your answer in dollars, not in millions.) Divisional RI

Solution

Answer of Part a:

Divisional ROI = Profit / Assets
Divisional ROI = $260,000,000 / $2,500,000,000
Divisional ROI = 0.104 or 10.4%

Answer of Part b:

Capital Charge = Assets * Cost of Capital
Capital Charge = $2,500,000,000 *6%
Capital Charge = $150,000,000

Divisional RI = Profit – Capital Charge
Divisional RI = $260,000,000 - $150,000,000
Divisional RI = $110,000,000