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It is the end of the third quarter, and Lisa is evaluating the performance of two key divisions in the company. Both divisions had $49,000 cash available for investment in the fourth quarter, so Lisa is now analyzing each division before a potential investment. She has gathered the following condensed income statements and selected information from the balance sheet for each division. The company's minimum required rate of return is 11%, while its weighted average cost of capital is 8%. Its effective tax rate is 25% Sales COGS Gross margin Operating expenses Operating income Operating assets Total assets Current liabilities. East $970,000 440,000 $530,000 480,000 $50,000 West $1,300,000 690,000 $610,000 560,000 $50,000 $800,000 $500,000 $1,100,000 $730,000 $150,000 $45,000

It is the end of the third quarter, and Lisa is evaluating the performance of two key divisions in the company. Both divisions had $49,000 cash available for investment in the fourth quarter, so Lisa is now analyzing each division before a potential investment. She has gathered the following condensed income statements and selected information from the balance sheet for each division. The company's minimum required rate of return is 11%, while its weighted average cost of capital is 8%. Its effective tax rate is 25% Sales COGS Gross margin Operating expenses Operating income Operating assets Total assets Current liabilities. East $970,000 440,000 $530,000 480,000 $50,000 West $1,300,000 690,000 $610,000 560,000 $50,000 $800,000 $500,000 $1,100,000 $730,000 $150,000 $45,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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It is the end of the third quarter, and Lisa is evaluating the performance of two key divisions in the company. Both divisions had $49,000 cash available for investment in the fourth quarter, so Lisa is now analyzing each division before a potential investment. She has gathered the following condensed income statements and selected information from the balance sheet for each division. The company's minimum required rate of return is 11%, while its weighted average cost of capital is 8%. Its effective tax rate is 25% Sales COGS Gross margin Operating expenses Operating income Operating assets Total assets Current liabilities East $970,000 440,000 $530,000 480,000 $50,000 West $1,300,000 690,000 $610,000 560,000 $50,000 $800,000 $500,000 $1,100,000 $730,000 $150,000 $45,000
Transcribed Image Text:It is the end of the third quarter, and Lisa is evaluating the performance of two key divisions in the company. Both divisions had $49,000 cash available for investment in the fourth quarter, so Lisa is now analyzing each division before a potential investment. She has gathered the following condensed income statements and selected information from the balance sheet for each division. The company's minimum required rate of return is 11%, while its weighted average cost of capital is 8%. Its effective tax rate is 25% Sales COGS Gross margin Operating expenses Operating income Operating assets Total assets Current liabilities East $970,000 440,000 $530,000 480,000 $50,000 West $1,300,000 690,000 $610,000 560,000 $50,000 $800,000 $500,000 $1,100,000 $730,000 $150,000 $45,000
How much new operating income would each division need to generate in the fourth quarter to reach a positive RI by year-end? Assume again that each division purchases a $49,000 nondepreciable asset that is still included in operating assets. Fourth quarter operating income needed eTextbook and Media Save for Later East West
Transcribed Image Text:How much new operating income would each division need to generate in the fourth quarter to reach a positive RI by year-end? Assume again that each division purchases a $49,000 nondepreciable asset that is still included in operating assets. Fourth quarter operating income needed eTextbook and Media Save for Later East West
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