Pharma Inc. has two product lines organized as divisions (Pain Reliever and Weight Loser) and spends heavily on research and development (R&D) activities. The following information is related to Pharma Inc's second year of operations. Pain Reliever $450,000 $300,000 Weight Loser R&D expenditures (second year) After-tax income Current liabilities Divisional investment 1,365,000 982,000 Cost of capital In the first year, Pain Reliever spent $300,000 on R&D, while Weight Loser spent $150,000. Pharma Inc. estimates that R&D expenditures have a three-year life to be amortized according to the following schedule: 1/6 in the year incurred, 1/3 in the next two years, and 1/6 in the fourth year after the initial spending. Required: Calculate EVA for the two divisions of Pharma Inc. for its second year of operations. 275,000 584,000 $210,000 397,000 23% 23%

Pharma Inc. has two product lines organized as divisions (Pain Reliever and Weight Loser) and spends heavily on research and development (R&D) activities. The following information is related to Pharma Inc's second year of operations. Pain Reliever $450,000 $300,000 Weight Loser R&D expenditures (second year) After-tax income Current liabilities Divisional investment 1,365,000 982,000 Cost of capital In the first year, Pain Reliever spent $300,000 on R&D, while Weight Loser spent $150,000. Pharma Inc. estimates that R&D expenditures have a three-year life to be amortized according to the following schedule: 1/6 in the year incurred, 1/3 in the next two years, and 1/6 in the fourth year after the initial spending. Required: Calculate EVA for the two divisions of Pharma Inc. for its second year of operations. 275,000 584,000 $210,000 397,000 23% 23%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Lasky Manufacturing has two divisions: Carolinas and Northeast. Lasky has a cost of capital of 7.5 percent. Selected financial information (in thousands of dollars) for the first year of business follows: Sales revenue Income Divisional assets (beginning of year) Current liabilities (beginning of year) RAD expenditures Carolinas $1,600 160 1,000 240 800 Northeast $5,500 Complete this question by entering your answers in the tabs below. 432 1,500 240 720 R&D is assumed to benefit two periods. All R&D is spent at the beginning of the year. Required: a-1. Evaluate the performance of the two divisions assuming Lasky Manufacturing uses economic value added (EVA). a-2. Which division had the better performance?
Global Imex has two divisions; one located at Accra and the other in Takoradi.The following is an extract from the annual report for the 2010 financial year ACCRA TAKORADI Profit Before Depreciation 450,000 620,000 Depreciation 120,000 130,000 Non Current Assets 1,200,000 1,300,000 Current Assets 750,000 1,000,000 Current Liabilities 350,000 400,000 Cost of Capital is 20% Required (i) Using Return on Investment (ROI) and Residual Income, comment on the performance of the divisions.(ii) The Takoradi branch intends to sell one of the non-current assets with book value of GH¢120,000. This asset generates a profit of GH¢60,000. Accra also wants to acquire another asset costing GH¢90,000 that will generate a profit of GH¢40,000. To what extent will the decisions affect the performance of the divisions?
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Evaluate the performance of two divisions assuming UEI uses economic value added (EVA).
The vice president of operations of Scott Hall and Associates is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows: Category Road Bike Division Mountain Bike Division Sales $1,750,000 $1,810,000 Cost of goods sold 1,300,000 1,440,000 Operating expenses 202,000 236,800 Invested assets 1,400,000 800,000 Prepare condensed divisional income statements for the year ended December 31, 2021, assuming that there were no service department charges. Using the DuPont formula for return on investment, determine the profit margin percentage, investment turnover, and return on investment for each division. (Round percentages and the investment turnover to two places behind the decimal.) If management’s minimum acceptable return on investment is 10%, determine the residual income for each division. In your own words…
The vice president of operations of Free Ride Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows: Category Road Bike Division Mountain Bike Division Sales $1,750,000 $1,810,000 Cost of goods sold Operating expenses 1,300,000 1,440,000 202,000 236,800 800,000 Invested assets 1,400,000 Instructions a. Prepare condensed divisional income statements for the year ended December 31, 2020, assuming that there were no service department charges. b. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. (Round percentages and the investment turnover to one decimal place.) c. If management's minimum acceptable return on investment is 10%, determine the residual income for each division. d. Discuss the evaluation of the two divisions, using the performance measures…
Long Beach Pharmaceutical Company has two divisions, which reported the following results for the most recent year. Income Average invested capital ROI Division I $ 900,000 $6,000,000 Division II $ 200,000 $1,000,000 15% 20% Which was the more successful division during the year? Think carefully about this, and Required: explain your answer.
What is the investment turnover?
Oscar Clemente is the manager of Forbes Division of Pitt, Inc., a manufacturer of biotech products. Forbes Division, which has $4.18 million in assets, manufactures a special testing device. At the beginning of the current year, Forbes invested $5.05 million in automated equipment for test machine assembly. The division 's expected income statement at the beginning of the year was as follows. Sales revenue $ 16,080,000 Operating costs Variable 2,040, 000 Fixed (all cash) 7,600,000 Depreciation New equipment 1,610,000 Other 1,350,000 Division operating profit $ 3,480,000A sales representative from LSI Machine Company approached Oscar in October. LSI has for $5.85 million a new assembly machine that offers significant improvements over the equipment Oscar bought at the beginning of the year. The new equipment would expand division output by 10 percent while reducing cash fixed costs by 5 percent. It would be depreciated for accounting purposes over a three-year life. Depreciation would…
Glardin Outdoors is a recreational goods retailer with two divisions: Online and Stores. The two divisions both use the services of the corporate Finance and Accounting (F and A) Department. Annual costs of the F and A Department total $5.215 million a year. Managers in the two operating divisions are measured based on division operating profits. The following selected data are available for the two operating divisions: Online Stores Revenues (5000) $ 74,700 40,500 Transactions (000) 1,216.5 358.5 Required: a. What is the F and A cost that is charged to each division if divisional revenues are used as the allocation basis? b. What is the F and A cost that is charged to each division if the the number of transactions is used as the allocation basis? Complete this question by entering your answers in the tabs below. Required A Required B What is the F and A cost that is charged to each division if divisional revenues are used as the allocation basis? Note: Do not round intermediate…

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