CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. Thecompany's management team is seeking guidance on the use of financial performancemeasures to identify the key drivers of the company's financial performance and develop astrategy to improve it. The following data relate to the company for the year 2022: In its clothing division, the company has $6,000,000 invested in assets. After-taxoperating income from sales of clothing in 2022 is $900,000. Income for the clothingdivision has grown steadily over the last few years. The cosmetics division has $14,000,000 invested in assets and an after-tax operatingincome in 2022 of $1,900,000. The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-taxreturn on investment for each division was 15%. The general manager of CarniTrin has asserted that in the future, managers shouldhave their compensation structure aligned with their performance measures with nofixed salaries. However, the general manager has told the manager of each divisionthat the better division in 2022 will get a bonus. 1. Calculate the return on investment (ROI) and residual income (RI) for each divisionof CarniTrin, and briefly explain which manager will get the bonus. 2. Another measure called economic value added (EVA) was brought to the attention ofthe general manager. The general manager requests that the accountant calculate EVAadjusted incomes of clothing and cosmetics, and finds that the adjusted after-taxoperating incomes are $960,000 and $1,660,000, respectively. Also, the clothingdivision has $600,000 of current liabilities, while the cosmetics division has only$400,000 of current liabilities. Using the preceding information, calculate EVA, and discuss which division managerwill get the bonus 3.What nonfinancial measures could CarniTrin use to evaluate divisional performances?
CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The
company's management team is seeking guidance on the use of financial performance
measures to identify the key drivers of the company's financial performance and develop a
strategy to improve it.
The following data relate to the company for the year 2022:
In its clothing division, the company has $6,000,000 invested in assets. After-tax
operating income from sales of clothing in 2022 is $900,000. Income for the clothing
division has grown steadily over the last few years.
The cosmetics division has $14,000,000 invested in assets and an after-tax operating
income in 2022 of $1,900,000.
The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-tax
The general manager of CarniTrin has asserted that in the future, managers should
have their compensation structure aligned with their performance measures with no
fixed salaries. However, the general manager has told the manager of each division
that the better division in 2022 will get a bonus.
1. Calculate the return on investment (ROI) and residual income (RI) for each division
of CarniTrin, and briefly explain which manager will get the bonus.
2. Another measure called economic value added (EVA) was brought to the attention of
the general manager. The general manager requests that the accountant calculate EVA
adjusted incomes of clothing and cosmetics, and finds that the adjusted after-tax
operating incomes are $960,000 and $1,660,000, respectively. Also, the clothing
division has $600,000 of current liabilities, while the cosmetics division has only
$400,000 of current liabilities. Using the preceding information, calculate EVA, and discuss which division manager
will get the bonus
3.What nonfinancial measures could CarniTrin use to evaluate divisional performances?
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