The following data are available for two divisions of Solomons Company.North Division$10,535,00049,000,000South Division$ 47,460,000339,000,000Division operating profitDivision investmentThe cost of capital for the company is 8 percent. Ignore taxes.Required:a-1. Calculate the ROI for both North and South divisions.a-2. If Solomons measures performance using ROI, which division had the better performance?b-1. Calculate the EVA for both North and South divisions. (The divisions have no current liabilities.)b-2. If Solomons measures performance using economic value added, which division had the better pc. Would your evaluation change if the company's cost of capital was 17 percent?1. When evaluated by ROI?2. When evaluated by EVA?Complete this question by entering your answers in the tabs below.Req A1DivisionsNorthSouthReg A2estion 12- Hom...Calculate the ROI for both North and South divisions. (Enter your answers as a percentage rounded to 1 de32.1).)ROIReq B1%%Req B2Req C1Reg A1Req C2Req A2 >< Prev12

Answer 1) ROI = Operating profit / investmentsNorth Devision = (10,515,000/49,000,000) x 100 =…

The following data are available for two divisions of Solomons Company. North Division South Division $10,535,000 $ 47,460,000 49,000,000 339,000,000 Division operating profit Division investment The cost of capital for the company is 8 percent. Ignore taxes. Required: a-1. Calculate the ROI for both North and South divisions. a-2. If Solomons measures performance using ROI, which division had the better performance? b-1. Calculate the EVA for both North and South divisions. (The divisions have no current liabilitie b-2. If Solomons measures performance using economic value added, which division had the be c. Would your evaluation change if the company's cost of capital was 17 percent? 1. When evaluated by ROI? 2. When evaluated by EVA?

The following data are available for two divisions of Solomons Company. North Division South Division $10,535,000 $ 47,460,000 49,000,000 339,000,000 Division operating profit Division investment The cost of capital for the company is 8 percent. Ignore taxes. Required: a-1. Calculate the ROI for both North and South divisions. a-2. If Solomons measures performance using ROI, which division had the better performance? b-1. Calculate the EVA for both North and South divisions. (The divisions have no current liabilitie b-2. If Solomons measures performance using economic value added, which division had the be c. Would your evaluation change if the company's cost of capital was 17 percent? 1. When evaluated by ROI? 2. When evaluated by EVA?

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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Consider the following data for three divisions of a company, X, Y, and Z: Divisional: X Y Z Sales $ 1,470,000 $ 974,000 $ 4,861,000 Operating Income 173,200 172,300 180,500 Investment in assets 428,200 567,500 2,553,200 The return on sales (ROS) for Division Y is: Multiple Choice 3.7%. 30.4%. 17.7%. 11.8%.
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ROI is effective because it takes into consideration the three factors under the control of an investment center manager: revenues, costs, and investments. ROI measures the income (or return) earned on each dollar of investment. APPLY THE CONCEPTS: Calculating return on investment The divisional income statements for three divisions of the McLaren Company are shown. McLaren Company Divisional Income Statements For the Year Ending December 31, 2012 Division A Division B Division C Sales Revenue $1,947,000 $1,197,000 $594,000 Operating expenses (1,148,730) (897,750) (314,820) Operating income before service department charges $798,270 $299,250 $279,180 Service department charges (467,280) (177,156) (166,320) Operating income $330,990 $122,094 $112,860 Additional financial data from the three divisions of the McLaren Company are shown. Division A Division B Division C Invested assets $1,100,000 $665,000 $450,000 Calculate the return on investment for each division. If required, round the…
What is EVA for Division Y?
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3. If management desires a minimum acceptable return on investment of 10%, determine the residual income for each division.
Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions: Case 1 2 3 4 Alpha Division: Capacity in units 92,000 412,000 162,000 312,000 Number of units now being sold to outside customers 92,000 412,000 112,000 312,000 Selling price per unit to outside customers $ 54 $ 114 $ 135 $ 74 Variable costs per unit $ 42 $ 89 $ 100 $ 50 Fixed costs per unit (based on capacity) $ 6 $ 15 $ 20 $ 9 Beta Division: Number of units needed annually 17,000 42,000 32,000 122,400 Purchase price now being paid to an outside supplier $ 51 $ 113 $ 135* — *Before any purchase discount. Required: 1. Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division. a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's…
Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions: Case 1 2 3 4 Alpha Division: Capacity in units 55,000 311,000 105,000 201,000 Number of units now being sold tooutside customers 55,000 311,000 81,000 201,000 Selling price per unit to outsidecustomers $ 96 $ 41 $ 70 $ 46 Variable costs per unit $ 59 $ 21 $ 44 $ 31 Fixed costs per unit (based oncapacity) $ 23 $ 10 $ 29 $ 8 Beta Division: Number of units needed annually 10,300 75,000 19,000 60,000 Purchase price now being paid toan outside supplier $ 85 $ 40 $ 70 * — *Before any purchase discount. Required: 1. Refer to case 1 shown above. Alpha Division can avoid $6 per unit in commissions on any sales to Beta Division. a. What is Alpha Division's lowest…
Tan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Required 1X Required 2 Sales Net operating income. Average operating assets Required: 1. For each division, compute the return on investment (ROI). 2. Compute the residual income for each division assuming the company's minimum required rate of return is 15%. Complete this question by entering your answers in the tabs below. ROI Osaka $ 10,500,000 $630,000 $ 3,500,000 Osaka Division For each division, compute the return on investment (ROI). % Yokohama $ 35,000,000 $ 2,800,000 $ 17,500,000 Yokohama %
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Meiji Isetan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Sales Net operating income Average operating assets Required 1 Required 2 Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 16%. Compute the residual income for each division. 3. Is Yokohama's greater amount of residual income an indication that it is better managed? Osaka $ 10,600,000 $ 742,000 $ 2,650,000 Complete this question by entering your answers in the tabs below. ROI % Division Required 3 For each division, compute the return on investment (ROI) in terms of margin and turnover. Osaka Yokohama Yokohama $ 36,000,000 $ 3,240,000 $ 18,000,000 %