Charteris is a division of Capriola Corporation and operates as an investment center. Charteris currently has...

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Charteris is a division of Capriola Corporation and operates asan investment center. Charteris currently has assets of $15million, revenues of $12 million, and expenses of $9 million. Thepresident of Charteris has an opportunity to acquire GrampanCorporation, which has revenues of $4 million, and expenses of $2.8million. Acquisition price (value of assets) would be $7.5 million.Capriola has a target ROI for all divisions of 14%.
a) Compute Charteris' current ROI.
b) If Capriola evaluates divisions based on ROI, will be thepresident of Charteris be inclined to make the acquisition?Explain.Use the DuPont method to provide insight into your answer.
c) Would your answer change if Capriola also used residualincome in evaluating divisions? Explain.

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Capriola Corporation Computation of Charteris current ROI As per the DuPont method Return on investment ROI margin x turnover Margin net operating incomesales Net operating income revenues expenses Revenues 12 million Expenses 9 million Net operating income 12 9 3 million Margin 3 million12 million 25 Turnover salesoperating assets Operating assets 15 million Turnover 1215 08 times Return on Investment 25 x 08 20 Hence Return on Investment of Charteris division 20 Computation of Grampan Corporations ROI Return on investment ROI margin x turnover Margin net See Answer

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