Question

Assume that the financial statements for Division 1 of the ABC Comapny showed the following for last year and at the last year end (in thousands).

Sales: $10,000,000

Operating income 3,000,000

Total assets 20,000,000

Current Liabilities 2,000,000

Management'srequired rate of return is 10%

The Company's average weighted cost of capital is $17

The Company's effective income tax rate is 30%

Questions:

a. what is the division's profit margin?

b. what is the division Return on Investment (ROI)?

c. what is the division's Residual Income (RI)?

d. what is the division's Economic Value Added (EVA)?

Answer #1

Izzy Division of Marine Boats Corporation had the following
results last year (in thousands).
Sales
$4,100,000
Operating
income
$500,000
Total assets
$3,000,000
Current
liabilities
$290,000
Management's target rate of return is 13% and the weighted average
cost of capital is 8%.
What is the Izzy Division's Residual Income (RI)?
$390,000
$65,000
$110,000
$500,000

#19
Assume the Hiking Shoes division of the All About Shoes
Corporation had the following results last year (in thousands).
Management's target rate of return is
15%
and the weighted average cost of capital is
25%.
Its effective tax rate is
25%.
Sales
$ $9,000,000
Operating income
3,150,000
Total assets
3,000,000
Current liabilities
850,000
What is the division's sales margin?

. Performance Evaluation Methods
Ebel Wares is a division of a major corporation. The following
data are for the latest year of
operations:
Sales................................................................................
$29,120,000
Net operating
income.....................................................
$1,514,240
Average operating
assets................................................
$8,000,000
The company’s minimum required rate of return..........
18%
Required:
a. What is the
division's margin?
b. What is the division's
turnover?
c. What is the
division's return on investment (ROI)?
d. What is the division's
residual income?
C. Performance Evaluation Methods
The Clipper Corporation had net operating income of $380,000...

Eacher Wares is a division of a major corporation. The following
data are for the latest year of operations:
Eacher Wares is a division of a major corporation. The following
data are for the latest year of operations:
Sales
$14,720,000
Net operating
income
$
1,000,960
Average
operating assets
$
4,000,000
The company's
minimum required rate of return
14%
a. What is the division's margin? (Enter your answer
rounded to 2 decimal places.)
b. What is the division's turnover? (Enter your...

ROI and EVA
The Bella Vista Woodwork Company uses return on investment and
economic value added as performance evaluation measures for its
division managers. The company's weighted average cost of capital
is 10 percent. Assume a tax rate of 20 percent. Financial data for
the company's three divisions follow. (all currencies converted to
US $)
US Division Asia Division Europe Division
Sales $300,000 $375,000 $450,000
Operating Income 25,000 28,000 29,500
Average operating Assets 150,000 125,000 175,000
Average Current liabilities 10,000...

Coolbrook Company has the following information available for
the past year:
River Division
Stream Division
Sales revenue
$
1,201,000
$
1,810,000
Cost of goods sold and operating
expenses
888,000
1,297,000
Net operating income
$
313,000
$
513,000
Average invested assets
$
1,090,000
$
1,550,000
The company’s hurdle rate is 6.51 percent.
Required:
1. Calculate return on investment (ROI) and residual
income for each division for last year. (Enter your ROI
answers as a percentage rounded to two decimal places,...

Information for Garland Construction for last
year:
Sales
$2,000,000
Variable costs
$1,200,000
Traceable fixed costs
$200,000
Average invested capital (assets)
$3,000,000
Current liabilities
$200,000
Required rate of return
15%
Marginal tax rate
36%
Weighted average cost of capital
12%
Solve
1. residual income.
2. return on investment.
3. Calculate the economic value added

Problem #1
Below
is information for Division Z:
Division Z
Sales
1,250,000
Operating income
$75,000
Operating assets
?
ROI
15%
Operating income Margin
?
Operating assets Turnover
?
Minimum rate of return
10%
Required:
1) What
is the residual income for Division Z?
2) What
is the turnover for Division Z?
4.
Problem
#2
The MistleToe Corporation sells Christmas
decorations. They had the following financial
information for 2019:
Pre-Tax Operating Profit
$6,000,000
Total Capital employed
$12,000,000
Amount of Debt
$8,000,000
MV...

Question 1
1) Jim, a financial analyst, is valuing ABC Limited (“ABC”)
using an equity and an asset-based approach. ABC’s only debt is a
bank loan and it has a debt-to-equity ratio of 1 while its tax rate
is 30%. The beta of ABC is 1.2, the risk-free rate is 2%, and the
market risk premium is 8%. The bank loan’s interest rate is 6%.
(a) Calculate ABC’s cost of equity.
(b) Calculate ABC’s weighted average cost of capital (WACC)....

Division A of ABC Company reported the following information
for the most recent year:
Turnover ................................ 5
Residual income ......................... $144,000
Minimum required rate of return ......... 15%
Margin .................................. 7%
Calculate the average operating assets reported by Division A
during the most recent year.

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