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$1,000 $5,000 Income 200 390 Investment (beginning of year) 2,000 3,000 Current liabilities (beginning of year) 200 200 R&D expendituresa 500 400 aR&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 return on investment (ROI).

Ratio analysis is a method of measuring the financial position of the organization with different kinds of ratios such as liquidity ratio, profitability ratio, solvency ratio. These ratios help to compare two or more financial statements.Return on investment = Income / Invetment East = 200 / 2000 = 0.10 or 10 % West = 390 / 3000 = 0.13 or 13 % As the west has more ROI. West is performing well then EAST.

Answered: Back Mountain Industries (BMI) has two…

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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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:

	East	West
Sales revenue	$	1,000	$	5,000
Income		200		390
Investment (beginning of year)		2,000		3,000
Current liabilities (beginning of year)		200		200
R&D expenditures^a		500		400

^aR&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 return on investment (ROI).

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