Houghton Chemicals, which started operations one year ago, has two divisions: Alloys which is assumed to generate benefits for five years. R&D spending is made uniformly cost of capital of 11 percent. Selected financial information for the two divisions (in thou follows: Sales revenue Divisional incone Divisional investment Current liabilities R&D Alloys $ 8,900 927 7,050 310 350 Petro $ 7,000 1,095 8,500 350 450
Houghton Chemicals, which started operations one year ago, has two divisions: Alloys which is assumed to generate benefits for five years. R&D spending is made uniformly cost of capital of 11 percent. Selected financial information for the two divisions (in thou follows: Sales revenue Divisional incone Divisional investment Current liabilities R&D Alloys $ 8,900 927 7,050 310 350 Petro $ 7,000 1,095 8,500 350 450
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
R&D
Alloys
$ 8,900
927
7,050
310
350
ROI of Alloys division
ROI of Petro division
Which division performed better?
Petro
$ 7,000
1,095
8,500
350
450
Required:
Evaluate the performance of the two divisions assuming Houghton uses return on investment (ROI).
Note: Enter your answers as a percentage rounded to 2 decimal places (i.e., 32.13).
%
%
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