Residual Income: The residual income is that income which is derived after deducting the return on the investment from the net income. Residual income is a favorable measure as it focuses on maximizing the return on the investment and helps in achieving the goal congruence. Return on Investment : The return on investment is a measure of the return which is derived from the part of the income which is invested. It is calculated by dividing the income from the investment. Economic Value Added: The economic value added is the excess of the income over the required return on the investment which is the residual income. To determine: The U.S. division’s operating income for 2017.

Question

BlueSky Corp has total debt of $250 million and 40 million shares outstanding with a market price of $5.50 per share. Calculate BlueSky's market debt-equity ratio. A) 1.52 B) 0.88 C) 1.14 D) 2.15

Answer 1

Question

Chapter 23, Problem 23.29E

1. a.

To determine

Residual Income:

The residual income is that income which is derived after deducting the return on the investment from the net income. Residual income is a favorable measure as it focuses on maximizing the return on the investment and helps in achieving the goal congruence.

Return on Investment:

The return on investment is a measure of the return which is derived from the part of the income which is invested. It is calculated by dividing the income from the investment.

Economic Value Added:

The economic value added is the excess of the income over the required return on the investment which is the residual income.

To determine: The U.S. division’s operating income for 2017.

1. b.

To determine

The Norwegian’s division’s ROI for 2017 in kroner.

2.

To determine

To explain: The top management about the division which earned better in 2017.

3.

To determine

The division which has the better residual income performance.

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BlueSky Corp has total debt of $250 million and 40 million shares outstanding with a market price of $5.50 per share. Calculate BlueSky's market debt-equity ratio. A) 1.52 B) 0.88 C) 1.14 D) 2.15

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Groot Co. (GC) sells $1,200,000 of 6-year, 10% bonds at par plus accrued interest. The bonds are dated January 1, 2026 but due to market conditions are not issued until May 1, 2026. Interest is payable on June 30 and December 31 each year. The market rate of interest at time of issue is the same as the stated rate. Required The issuance of the bonds on May 1, 2026. Assume that GC has adopted a policy of crediting accrued interest payable for the accrued interest on the date of sale. Payment of interest on June 30, 2026. Payment of interest on December 31, 2026.

Answer 2

Question

Chapter 23, Problem 23.29E

1. a.

To determine

Residual Income:

The residual income is that income which is derived after deducting the return on the investment from the net income. Residual income is a favorable measure as it focuses on maximizing the return on the investment and helps in achieving the goal congruence.

Return on Investment:

The return on investment is a measure of the return which is derived from the part of the income which is invested. It is calculated by dividing the income from the investment.

Economic Value Added:

The economic value added is the excess of the income over the required return on the investment which is the residual income.

To determine: The U.S. division’s operating income for 2017.

1. b.

To determine

The Norwegian’s division’s ROI for 2017 in kroner.

2.

To determine

To explain: The top management about the division which earned better in 2017.

3.

To determine

The division which has the better residual income performance.

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Answer 3

Question

Chapter 23, Problem 23.29E

1. a.

To determine

Residual Income:

The residual income is that income which is derived after deducting the return on the investment from the net income. Residual income is a favorable measure as it focuses on maximizing the return on the investment and helps in achieving the goal congruence.

Return on Investment:

The return on investment is a measure of the return which is derived from the part of the income which is invested. It is calculated by dividing the income from the investment.

Economic Value Added:

The economic value added is the excess of the income over the required return on the investment which is the residual income.

To determine: The U.S. division’s operating income for 2017.

1. b.

To determine

The Norwegian’s division’s ROI for 2017 in kroner.

2.

To determine

To explain: The top management about the division which earned better in 2017.

3.

To determine

The division which has the better residual income performance.

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Answer 4

Question

Chapter 23, Problem 23.29E

1. a.

To determine

Residual Income:

The residual income is that income which is derived after deducting the return on the investment from the net income. Residual income is a favorable measure as it focuses on maximizing the return on the investment and helps in achieving the goal congruence.

Return on Investment:

The return on investment is a measure of the return which is derived from the part of the income which is invested. It is calculated by dividing the income from the investment.

Economic Value Added:

The economic value added is the excess of the income over the required return on the investment which is the residual income.

To determine: The U.S. division’s operating income for 2017.

1. b.

To determine

The Norwegian’s division’s ROI for 2017 in kroner.

2.

To determine

To explain: The top management about the division which earned better in 2017.

3.

To determine

The division which has the better residual income performance.

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Answer 5

Chapter 23, Problem 23.29E

1. a.

To determine

Residual Income:

The residual income is that income which is derived after deducting the return on the investment from the net income. Residual income is a favorable measure as it focuses on maximizing the return on the investment and helps in achieving the goal congruence.

Return on Investment:

The return on investment is a measure of the return which is derived from the part of the income which is invested. It is calculated by dividing the income from the investment.

Economic Value Added:

The economic value added is the excess of the income over the required return on the investment which is the residual income.

To determine: The U.S. division’s operating income for 2017.

1. b.

To determine

The Norwegian’s division’s ROI for 2017 in kroner.

2.

To determine

To explain: The top management about the division which earned better in 2017.

3.

To determine

The division which has the better residual income performance.

Answer 6

Chapter 23, Problem 23.29E

1. a.

To determine

Residual Income:

The residual income is that income which is derived after deducting the return on the investment from the net income. Residual income is a favorable measure as it focuses on maximizing the return on the investment and helps in achieving the goal congruence.

Return on Investment:

The return on investment is a measure of the return which is derived from the part of the income which is invested. It is calculated by dividing the income from the investment.

Economic Value Added:

The economic value added is the excess of the income over the required return on the investment which is the residual income.

To determine: The U.S. division’s operating income for 2017.

Answer 7

Chapter 23, Problem 23.29E

1. a.

To determine

Residual Income:

The residual income is that income which is derived after deducting the return on the investment from the net income. Residual income is a favorable measure as it focuses on maximizing the return on the investment and helps in achieving the goal congruence.

Return on Investment:

The return on investment is a measure of the return which is derived from the part of the income which is invested. It is calculated by dividing the income from the investment.

Economic Value Added:

The economic value added is the excess of the income over the required return on the investment which is the residual income.

To determine: The U.S. division’s operating income for 2017.

Answer 8

1. b.

To determine

The Norwegian’s division’s ROI for 2017 in kroner.

Answer 9

1. b.

To determine

The Norwegian’s division’s ROI for 2017 in kroner.

Answer 10

2.

To determine

To explain: The top management about the division which earned better in 2017.

Answer 11

2.

To determine

To explain: The top management about the division which earned better in 2017.

Answer 12

3.

To determine

The division which has the better residual income performance.

Answer 13

3.

To determine

The division which has the better residual income performance.

Answer 14

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Ch. 23 - Prob. 23.1Q Ch. 23 - Prob. 23.2Q Ch. 23 - What factors affecting ROI does the DuPont method...Ch. 23 - RI is not identical to ROI, although both measures...Ch. 23 - Describe EVA.Ch. 23 - Give three definitions of investment used in...Ch. 23 - Distinguish between measuring assets based on...Ch. 23 - Prob. 23.8Q Ch. 23 - Why is it important to distinguish between the...Ch. 23 - Prob. 23.10Q

Solution Summary: The author explains the calculation of the U.S. division's operating income for 2017 in kroner.

The Norwegian’s division’s ROI for 2017 in kroner.

To explain: The top management about the division which earned better in 2017.

The division which has the better residual income performance.

Chapter 23 Solutions