Residual IncomeWashington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last year's results:Adams Division Jefferson DivisionNet (after-tax) income$611,050$321,300Total capital employed4,520,0003,640,000In addition, Washington Company's top management has set a minimum acceptable rate of return equal to 7%.Required:Enter negative values as negative numbers.1. Calculate the residual income for the Adams Division.2. Calculate the residual income for the Jefferson Division.

Residual income is the part of net income after charging the cost of capital which is also known as…

Answered: Washington Company has two divisions:…

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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Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last year's results: Adams Division Jefferson Division Net (after-tax) income $641,300 $378,000 Total capital employed 4,200,000 3,282,500 Washington's actual cost of capital was 12%. Required: 1. Calculate the EVA for the Adams Division. If required, enter a negative EVA as a negative number by entering your answer with the minus sign. 2. Calculate the EVA for the Jefferson Division. If required, enter a negative EVA as a negative number by entering your answer with the minus sign. 3. Conceptual Connection: Is each division creating or destroying wealth? Adams Division Jefferson Division 4. Describe generally the types of actions that Washington’s management team could take to increase Jefferson Division’s EVA? Increase the after-tax operating profit that is generated from using the same amount of invested capital. Continue…
The Casket Division of Saal Corporation had average operating assets of $1,020,000 and net operating income of $205,200 in January. The company uses residual income to evaluate the performance of its divisions, with a minimum required rate of return of 14%. Required: What was the Casket Division's residual income in January?
A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Do not round your intermediate calculations.) Sales Net operating income Average operating assets Return on investment (ROI) Minimum required rate of return: Percentage Dollar amount Residual income $ $ Company A 480,000 156,000 21 % 18 % Company B $ 740,000 GA GA $ 53,000 $ 69 18 % 54.000 % $ $ $ Company C 520,000 155,000 % 12 % 5,000
calculate all the missing values a, b, c, d, e, f, g, and h. Madison Corp. has a hurdle rate/required rate of return of 9%. Operating Average income (c) Total assets $115,000 $800,000 (a) (f) $175,000 (e) Return on Residual investment income (ROI) $1,350,000 17% $46,800 (h) $750,000 (g) 13% (RI) (b) (d) $31,000 $36,000 ?
A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Round your percentage answers to nearest whole percent and other amounts to whole dollars.) Sales Net operating income Average operating assets Return on investment (ROI) Minimum required rate of return: Percentage Dollar amount Residual income $ $ A 470,000 160,000 15 % 16 % $ $ $ Company B 680,000 43,000 19 % 57,000 % C $ 560,000 $ 145,000 $ % 10 % 5,000
Concord Company earned a controllable margin of $125000 on sales of $1607000. The division had average operating assets of $1293000. The company requires a return on investment of at least 7%. How much is residual income? O $34490 O $159490 O $90510 O $112490
A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Do not round your intermediate calculations.) Sales Net operating income. Average operating assets Return on investment (ROI) Minimum required rate of return: Percentage Dollar amount Residual income $ Company A 400,000 Company B $ 690,000 $ Company C 670,000 $ 37,000 $ 154,000 $ 142,000 24 % 17% % 13 % % 10 % $ 44,000 $ 5,000
Imagination Corporation uses residual income to evaluate the performance of its divisions. Imagination's minimum required rate of return is 10%. In April, the Commercial Products Division had average operating assets of $105,000 and net operating income of $9,700. What was the Commercial Products Division's residual income in April? Multiple Choice $970. $(970). $800. $(800).
Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last year's results: Adams Division Jefferson Division Net (after-tax) income $653,400 $330,750 Total capital employed 4,560,000 3,705,000 In addition, Washington Company's top management has set a minimum acceptable rate of return equal to 7%. Required: Enter negative values as negative numbers. 1. Calculate the residual income for the Adams Division. 2. Calculate the residual income for the Jefferson Division.
Eacher Wares is a division of a major corporation. The following data are for the latest year of operations: Sales Net operating income Average operating assets The company's minimum required rate of return $14,720,000 $1,000,960 $4,000,000 14% Required: a. What is the division's margin? b. What is the division's turnover? c. What is the division's return on investment (ROI)? d. What is the division's residual income?

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