I need some help with this one. Return on Investment and Residual Income Skyview Company has two divisions, Residential Skylights and Automotive Sunroofs. The manager of the Residential Skylights Division is evalu-ated based on return on investment (ROI). The manager of the Automotive Sunroofs Division is evaluated based on residual income.The required return is 12% and the return on investment has been 16% for the two divisions. Each manager is currently considering a project with the following projections (in$000s):  ResidentialSkylightsAutomotiveSunroofsProjected operating income$350$560Investment in operating assets$2,500$4,000 Requireda. What is the Residential Skylights’ ROI?b. What is Automotive Sunroofs’ residual income?c. According to the current evaluation system for managers, which manager(s) would have incen-tive to undertake the project

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Asked Oct 2, 2019
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I need some help with this one. 

Return on Investment and Residual Income Skyview Company has two divisions, Residential Skylights and Automotive Sunroofs. The manager of the Residential Skylights Division is evalu-
ated based on return on investment (ROI). The manager of the Automotive Sunroofs Division is evaluated based on residual income.The required return is 12% and the return on investment has been 16% for the two divisions. Each manager is currently considering a project with the following projections (in$000s):
 
 
Residential
Skylights
Automotive
Sunroofs
Projected operating income $350 $560
Investment in operating assets $2,500 $4,000
 
Required
a. What is the Residential Skylights’ ROI?
b. What is Automotive Sunroofs’ residual income?
c. According to the current evaluation system for managers, which manager(s) would have incen-
tive to undertake the project
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Expert Answer

Step 1

ROI or Return on Investment measures the profits as a percentage of total investments.

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ROI for Residential Skylights Projected income (a) Investment in Assets (b) ROI (a/b) $ 350 $2,500 14%

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Step 2

Residual income means the income generated more than the inc...

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Automotive Sunroofs computation of residual income Investment in assets Required return Required profits Projected operating income Residual income 4000 12% 480 560 80

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