Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 17

Rate of return on investment, residual income for a service company
Starwood Hotels Resorts Worldwide provides lodging services around the world. The company is separated into two major divisions.
• Hotel Ownership: Hotels owned and operated by Starwood.
• Vacation Ownership: Resort properties developed, owned, and operated for timeshare vacation owners.
Financial information for each division, from a recent annual report, is an follows (in millions):

a. Use the DuPont formula to determine the return on investment for each of the Star wood business divisions. Round whole percents to one decimal place and investment turnover to two decimal places.
b. Determine the residual income for each division, assuming a minimum acceptable income of 5% of total assets. Round minimal acceptable return to the nearest million dollars.
c. Interpret your results.