1. Compute ROI (use operating income before income tax)2. In using EVA, what is the EVA of the division that is performing better?3. Compute Residual Income (use operating income before income tax) Endless Inc. presented the ff. info regarding its two divisions classified as investmentcenters.JennyJohnnyDivisionDivisionP 300, 0001, 200, 000Operating incomeP 500, 000Operating assets2, 500, 000Net sales1, 500, 000 2, 750, 000Current Liabilities240, 000375, 000WACC15%12.5%Current Operating500,000750,000AssetThe corporation is subject to 35% tax rate. Weighted cost of capital is based onbook value of long-term asset. Assuming the imputed interest rate is 18%

Return on investment is the net income earned on the basis of investment earned by the company.

Answered: 1. Compute ROI (use operating income…

1. Compute ROI (use operating income before income tax) 2. In using EVA, what is the EVA of the division that is performing better? 3. Compute Residual Income (use operating income before income tax)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

1. Compute ROI (use operating income before income tax)

2. In using EVA, what is the EVA of the division that is performing better?

3. Compute Residual Income (use operating income before income tax)

Endless Inc. presented the ff. info regarding its two divisions classified as investment
centers.
Jenny
Johnny
Division
Division
P 300, 000
1, 200, 000
Operating income
P 500, 000
Operating assets
2, 500, 000
Net sales
1, 500, 000 2, 750, 000
Current Liabilities
240, 000
375, 000
WACC
15%
12.5%
Current Operating
500,000
750,000
Asset
The corporation is subject to 35% tax rate. Weighted cost of capital is based on
book value of long-term asset. Assuming the imputed interest rate is 18%

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