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 Operating Income $3,248,500 2,748,500 4,998,500 1. Return on investment (ROI) 2. Residual income (Ri) 3. EVAⓇ 5.00% 4.00% Soap Products Average Total Assets $ 59,998,500 32,998,500 54,998,500 Required: 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. % Skin Lotions Value of Intangibles $1,498,500 7,998,500 998,500 % Intangibles Effect on Income $ 998,500 5,998,500 698,500 Hair Products %
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 Operating Income $3,248,500 2,748,500 4,998,500 1. Return on investment (ROI) 2. Residual income (Ri) 3. EVAⓇ 5.00% 4.00% Soap Products Average Total Assets $ 59,998,500 32,998,500 54,998,500 Required: 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. % Skin Lotions Value of Intangibles $1,498,500 7,998,500 998,500 % Intangibles Effect on Income $ 998,500 5,998,500 698,500 Hair Products %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text: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
Operating
Income
$ 3,248,500
2,748,500
4,998,500
1. Return on investment (ROI)
2. Residual income (RI)
3. EVAⓇ
Soap Products
5.00%
4.00%
%
Average Total
Assets
$ 59,998,500
32,998,500
54,998,500
Required:
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.
Skin Lotions
Value of
Intangibles
$ 1,498,500
7,998,500
998,500
%
Intangibles
Effect on
Income
$ 998,500
5,998,500
698,500
Hair Products
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education