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.
