Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost of capital of 15 percent. Selected financial information(in thousands of dollars) for the first year of business follows:EastWestSales revenue$1,0002002,000$5,000390IncomeInvestment (beginning of year)Current liabilities (beginning of year)3,000200200RAD expenditures500400R&D is assumed to benefit two periods. All R&D is spent at the beginning of the year.Required:a-1. Evaluate the performance of the two divisions assuming BMI uses residual income. (Enter answers in thousands of dollars.Negative amounts should be indicated by a minus sign.)ResidualIncomeDivisionsEastWest

Formula: Residual income = Income - ( cost of capital x Average operating Assets )

Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost of capital of 15 percent. Selected financial Inform (in thousands of dollars) for the first year of business follows: East West Sales revenue Income Investment (beginning ot year) Current liabilities (beginning of year) $1,000 200 $5,000 390 2,000 200 3,000 200 RAD expenditures 500 400 R&D is assumed to benefit two periods. All R&D is spent at the beginning of the year. Required: a-1. Evaluate the performance of the two divisions assuming BMI uses residual income. (Enter answers in thousands of dollars. Negative amounts should be indicated by a minus sign.) Divisions Residual Income Fast

Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost of capital of 15 percent. Selected financial Inform (in thousands of dollars) for the first year of business follows: East West Sales revenue Income Investment (beginning ot year) Current liabilities (beginning of year) $1,000 200 $5,000 390 2,000 200 3,000 200 RAD expenditures 500 400 R&D is assumed to benefit two periods. All R&D is spent at the beginning of the year. Required: a-1. Evaluate the performance of the two divisions assuming BMI uses residual income. (Enter answers in thousands of dollars. Negative amounts should be indicated by a minus sign.) Divisions Residual Income Fast

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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Assume division 1 of the XYZ Company had the following results last year (in thousands) Management's required rate of return is 81% and the weighted average cost of capital is 6% Its effective tax rate is 30% Sales$ 9,000,000 Operating expenses $ 1,200,000 Operating income $1,500,000 Total revenue$ 2,000,000 Total assets $ 12,000,000 Current liabilities$ 5,000,000 What is the division's residual income? $100,000 $200,000 $500, 000 $ 540,000 Assume division 1 of the XYZ Company had the following results last year (in thousands). Management's required rate of return is 8% and the weighted average cost of capital is 6% effective tax rate is 30% . \table [[Sales, $9, 000, 000
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