Houghton Chemicals, which started operations one year ago, has two divisions: Alloys and Petro. Both divisions invest heavily in R&D, which is assumed to generate benefits for five years. R&D spending is made uniformly throughout the year. Houghton Chemicals has a cost of capital of 11 percent. Selected financial information for the two divisions (in thousands of dollars) for the year just completed follows: Sales revenue Divisional income Divisional investment Current liabilities Alloys $ 8,500 887 6,650 270 R&D Required: Petro $ 6,600 1,055 8,100 310 310 410 Evaluate the performance of the two divisions assuming Houghton Chemicals uses residual income. Note: Enter your answers in thousands of dollars rounded to 1 decimal place. Residual Income of Alloys division Residual Income of Petro division Which division performed better?
Houghton Chemicals, which started operations one year ago, has two divisions: Alloys and Petro. Both divisions invest heavily in R&D, which is assumed to generate benefits for five years. R&D spending is made uniformly throughout the year. Houghton Chemicals has a cost of capital of 11 percent. Selected financial information for the two divisions (in thousands of dollars) for the year just completed follows: Sales revenue Divisional income Divisional investment Current liabilities Alloys $ 8,500 887 6,650 270 R&D Required: Petro $ 6,600 1,055 8,100 310 310 410 Evaluate the performance of the two divisions assuming Houghton Chemicals uses residual income. Note: Enter your answers in thousands of dollars rounded to 1 decimal place. Residual Income of Alloys division Residual Income of Petro division Which division performed better?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Houghton Chemicals, which started operations one year ago, has two divisions: Alloys and Petro. Both divisions invest heavily in R&D,
which is assumed to generate benefits for five years. R&D spending is made uniformly throughout the year. Houghton Chemicals has a
cost of capital of 11 percent. Selected financial information for the two divisions (in thousands of dollars) for the year just completed
follows:
Sales revenue
Divisional income
Divisional investment
Current liabilities
Alloys
$ 8,500
887
6,650
270
R&D
Required:
Petro
$ 6,600
1,055
8,100
310
310
410
Evaluate the performance of the two divisions assuming Houghton Chemicals uses residual income.
Note: Enter your answers in thousands of dollars rounded to 1 decimal place.
Residual Income of Alloys division
Residual Income of Petro division
Which division performed better?
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