Residual Income
The operating income and the amount of invested assets in each
division of Conley...
Residual Income
The operating income and the amount of invested assets in each
division of Conley Industries are as follows:
Operating income
Invested Assets
Retail Division
$176,400
$840,000
Commercial Division
112,700
490,000
Internet Division
96,900
570,000
Assume that management has established a 12% minimum acceptable
return for invested assets.
a. Determine the residual income for each
division.
Retail Division
Commercial Division
Internet Division
Operating income
$176,400
$112,700
$96,900
Minimum acceptable operating income as a percent of invested
assets
Residual income...
Bombard Division has operating income of $200,000 for the year
ending December 31, 2011. Average invested...
Bombard Division has operating income of $200,000 for the year
ending December 31, 2011. Average invested capital is $1,000,000
and the weighted-average cost of capital is 10%. The division is
considering a new investment that would cost $500,000 and earn 15%
annually. If residual income is the performance metric,
should the manager of the Bombard Division accept the new
investment?
No, because the return on investment of the division decreases
with the new investment.
No, because the return on investment of...
Residual Income Washington Company has two divisions: the Adams
Division and the Jefferson Division. The following...
Residual Income Washington Company has two divisions: the Adams
Division and the Jefferson Division. The following information
pertains to last year's results: Adams Division Jefferson Division
Net (after-tax) income $713,900 $318,150 Total capital employed
4,280,000 3,640,000 In addition, Washington Company's top
management has set a minimum acceptable rate of return equal to
10%. Required: Enter negative values as negative numbers. 1.
Calculate the residual income for the Adams Division. $ 2.
Calculate the residual income for the Jefferson Division. $
The operating income and the amount of invested assets in each
division of Conley Industries are...
The operating income and the amount of invested assets in each
division of Conley Industries are as follows:
Operating income
Invested Assets
Retail Division
$60,800
$320,000
Commercial Division
52,800
240,000
Internet Division
181,700
790,000
Assume that management has established a 8% minimum acceptable
return for invested assets.
a. Determine the residual income for each
division.
Retail Division
Commercial Division
Internet Division
Operating income
$60,800
$52,800
$181,700
Minimum acceptable operating income as a percent of invested
assets
Residual income
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Determining...
Economic Value Added
Washington Company has two divisions: the Adams Division and the
Jefferson Division. The...
Economic Value Added
Washington Company has two divisions: the Adams Division and the
Jefferson Division. The following information pertains to last
year's results:
Adams Division
Jefferson Division
Net (after-tax) income
$647,350
$355,950
Total capital employed
4,440,000
3,380,000
Washington's actual cost of capital was 11%.
Required:
1. Calculate the EVA for the Adams Division. If
required, enter a negative EVA as a negative number by entering
your answer with the minus sign.
$
2. Calculate the EVA for the Jefferson
Division....
Residual Income and Investment Decisions. Jarriot, Inc.,
presented two years of data for its Furniture Division...
Residual Income and Investment Decisions. Jarriot, Inc.,
presented two years of data for its Furniture Division and its
Houseware Division.
Furniture Division:
Year 1
Year 2
Sales
$35,700,000
$37,700,000
Operating income
1,420,000
1,520,000
Average operating assets
2,750,000
2,750,000
Houseware Division:
Year 1
Year 2
Sales
$11,500,000
$12,600,000
Operating income
660,000
540,000
Average operating assets
5,500,000
5,500,000
At the end of Year 2, the manager of the Houseware Division is
concerned about the division’s performance. As a result, he...
Residual Income and Investment Decisions
Jarriot, Inc., presented two years of data for its Furniture
Division...
Residual Income and Investment Decisions
Jarriot, Inc., presented two years of data for its Furniture
Division and its Houseware Division.
Furniture Division:
Year 1
Year 2
Sales
$35,100,000
$37,800,000
Operating income
1,430,000
1,550,000
Average operating assets
4,560,000
4,560,000
Houseware Division:
Year 1
Year 2
Sales
$11,900,000
$12,600,000
Operating income
630,000
570,000
Average operating assets
5,900,000
5,900,000
At the end of Year 2, the manager of the Houseware Division is
concerned about the division’s performance. As a result, he...
Coolbrook Company has the following information available for
the past year:
River Division
Stream Division...
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,...
E10-7 Evaluating Managerial Performance Using Return on
Investment, Residual Income [LO 10-4, 10-5]
Orange Corp. has...
E10-7 Evaluating Managerial Performance Using Return on
Investment, Residual Income [LO 10-4, 10-5]
Orange Corp. has two divisions: Fruit and Flower. The following
information for the past year is available for each division:
Fruit Division
Flower Division
Sales revenue
$
1,560,000
$
2,340,000
Cost of goods sold and operating
expenses
1,170,000
1,755,000
Net operating income
$
390,000
$
585,000
Average invested assets
$
4,875,000
$
2,437,500
Orange has established a hurdle rate of 6
percent.
Required:
1-a. Compute each...
Titus Inc.
Segmented Income Statements
For the Current Fiscal Year Ended December
31
Southeast
Division
Northwest...
Titus Inc.
Segmented Income Statements
For the Current Fiscal Year Ended December
31
Southeast
Division
Northwest
Division
Sales
$4,400,000
$2,600,000
Cost of goods sold
2,400,000
1,500,000
Gross margin
2,000,000
1,100,000
Allocated overhead (from corporate)
600,000
370,000
Selling and administrative expenses
430,000
340,000
Operating income
970,000
390,000
Income tax expense (35%)
339,500
136,500
Net income
630,500
$ 253,500
Required:
(1) Using the segmented
income statements presented, determine the profit margin ratio for
each
division.
(2) Assume the Southeast
division had average operating assets totaling...