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Exercise 19-27 (Algo) Return on Investment; Residual Income; EVA® [LO 19-1, 19-2, 19-3] Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVAⓇ), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Division Soap products Skin lotions Hair products Minimum desired rate of return Cost of capital Required: Operating Income $ 3,242,000 2,742,000 Average Total Assets $ 59,992,000 32,992,000 54,992,000 Value of Intangibles $ 1,492,000 7,992,000 992,000 4,992,000 5.00% 4.00% Intangibles' Effect on Income $ 992,000 5,992,000 692,000 1. Calculate the return on investment (ROI) for each division. (Round your answers to 2 decimal places. (i.e. .1234 = 12.34%)) 2. Calculate the residual income (RI) for each division. 3. Calculate EVA for each division. 1. Return on investment (ROI) 2. Residual income (RI) 3. EVA Ⓡ Soap Products Skin Lotions Hair Products % % %

Exercise 19-27 (Algo) Return on Investment; Residual Income; EVA® [LO 19-1, 19-2, 19-3] Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVAⓇ), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Division Soap products Skin lotions Hair products Minimum desired rate of return Cost of capital Required: Operating Income $ 3,242,000 2,742,000 Average Total Assets $ 59,992,000 32,992,000 54,992,000 Value of Intangibles $ 1,492,000 7,992,000 992,000 4,992,000 5.00% 4.00% Intangibles' Effect on Income $ 992,000 5,992,000 692,000 1. Calculate the return on investment (ROI) for each division. (Round your answers to 2 decimal places. (i.e. .1234 = 12.34%)) 2. Calculate the residual income (RI) for each division. 3. Calculate EVA for each division. 1. Return on investment (ROI) 2. Residual income (RI) 3. EVA Ⓡ Soap Products Skin Lotions Hair Products % % %

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter8: Tactical Decision-making And Relevant Analysis
Section: Chapter Questions
Problem 45E
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Exercise 19-27 (Algo) Return on Investment; Residual Income; EVA® [LO 19-1, 19-2, 19-3] Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVAⓇ), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Division Soap products Skin lotions Hair products Minimum desired rate of return Cost of capital Required: Operating Income $ 3,242,000 2,742,000 Average Total Assets $ 59,992,000 32,992,000 54,992,000 Value of Intangibles $ 1,492,000 7,992,000 992,000 4,992,000 5.00% 4.00% Intangibles' Effect on Income $ 992,000 5,992,000 692,000 1. Calculate the return on investment (ROI) for each division. (Round your answers to 2 decimal places. (i.e. .1234 = 12.34%)) 2. Calculate the residual income (RI) for each division. 3. Calculate EVA for each division. 1. Return on investment (ROI) 2. Residual income (RI) 3. EVA Ⓡ Soap Products Skin Lotions Hair Products % % %
Transcribed Image Text:Exercise 19-27 (Algo) Return on Investment; Residual Income; EVA® [LO 19-1, 19-2, 19-3] Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVAⓇ), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Division Soap products Skin lotions Hair products Minimum desired rate of return Cost of capital Required: Operating Income $ 3,242,000 2,742,000 Average Total Assets $ 59,992,000 32,992,000 54,992,000 Value of Intangibles $ 1,492,000 7,992,000 992,000 4,992,000 5.00% 4.00% Intangibles' Effect on Income $ 992,000 5,992,000 692,000 1. Calculate the return on investment (ROI) for each division. (Round your answers to 2 decimal places. (i.e. .1234 = 12.34%)) 2. Calculate the residual income (RI) for each division. 3. Calculate EVA for each division. 1. Return on investment (ROI) 2. Residual income (RI) 3. EVA Ⓡ Soap Products Skin Lotions Hair Products % % %
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