Select the formula and calculate residual income for each of the product lines. Then, based on your analysis, evaluate the performance millions. Enter a "0" for amounts with a zero balance and use a minus sign or parentheses for a residual loss.) Product line Income Cost of capital Residual income (loss) Evaluation Golf Ski Tennis Football
Select the formula and calculate residual income for each of the product lines. Then, based on your analysis, evaluate the performance millions. Enter a "0" for amounts with a zero balance and use a minus sign or parentheses for a residual loss.) Product line Income Cost of capital Residual income (loss) Evaluation Golf Ski Tennis Football
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question

Transcribed Image Text:Based on an analysis of operations, a company making sporting goods has determined that the income provided by its golf, ski, tennis, and football product lines are $6 million, $8.2 million, $2.2 million,
and $2.7 million, respectively. The accountant believes that the investment levels in these product lines are $36 million, $70 million, $30 million, and $28 million, respectively.
Requirement
Use a residual income analysis to evaluate the performance of each of these product lines, assuming that the organization requires a 11% return on investment.
Select the formula and calculate residual income for each of the product lines. Then, based on your analysis, evaluate the performance of each of these product lines. (Enter amounts in dollars and not in
millions. Enter a "0" for amounts with a zero balance and use a minus sign or parentheses for a residual loss.)
Income
Cost of capital
Product line
Residual income (loss)
Evaluation
Golf
Ski
Tennis
Football
W
The results above
The accountant must determine whether there are
reported income figures that could cause the reported results to be quite different than if other assumptions were used. If the income numbers
this company must improve its performance in the
used in the
substantially or think seriously of abandoning them
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