Blue Devil Corp. has two sources of funds: long-term debt and equity capital. The company has profit centers in the following regions with the following net incomes and total assets: Net Income Assets North America $800,000 $10,000,000 Asia 1,170,000 12,000,000 Europe 680,000 8,000,000 Required: a. Calculate ROI for each profit center, and identify which region has the best performance. Round your answer to two decimal places. b. Calculate the residual income for each profit center based on a desired ROI of 8.5%, and identify which region’s performance is below the company’s expectation.
Blue Devil Corp. has two sources of funds: long-term debt and equity capital. The company has profit centers in the following regions with the following net incomes and total assets: Net Income Assets North America $800,000 $10,000,000 Asia 1,170,000 12,000,000 Europe 680,000 8,000,000 Required: a. Calculate ROI for each profit center, and identify which region has the best performance. Round your answer to two decimal places. b. Calculate the residual income for each profit center based on a desired ROI of 8.5%, and identify which region’s performance is below the company’s expectation.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Blue Devil Corp. has two sources of funds: long-term debt and equity capital. The company has profit centers in the following regions with the following net incomes and total assets:
| Net Income | Assets | |
| North America | $800,000 | $10,000,000 |
| Asia | 1,170,000 | 12,000,000 |
| Europe | 680,000 | 8,000,000 |
Required:
a. Calculate ROI for each profit center, and identify which region has the best performance. Round your answer to two decimal places.
b. Calculate the residual income for each profit center based on a desired ROI of 8.5%, and identify which region’s performance is below the company’s expectation.
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