Answer:
1.
Return on investment = operating income divided by operating Assets
A. Return on investment on Campbell business = $6,821,100 / $58,300,000 x 100%
= 11.7%
B. Return on investment on Tree cutting business = $1,174,670 / $6,790,000 x 100%
= 17.3%
C. Return on new investment on tree cutting business :
i. Only new investment = $434,000 / $2,170,000 x 100%
= 20%
ii. Total new investment = $1,608,670 / $8,960,000
= 18%
2.
Residual income = controllable Margin - (required return % x average operating assets)
Residual income on Campbell business = $6,821,100 - (9.70% x $58,300,000)
= $1,166,000
B. Residual income on Tree cutting business = $1,174,670 - (9.70% x $6,790,000)
= $516,040
C. Residual income on tree cutting business :
i. Only new investment = $434,000 - (9.70% x $2,170,000)
= $223,510
ii. Total new investment = $1,608,670 - (9.70% x $8,960,000)
= $739,550
