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61 in an economic value added calculation the measure of the invested capital for a 4300349

 

61) In an Economic Value Added calculation, the measure of the invested capital for a division would be that division's assets minus that division's liabilities.

 

62) In an Economic Value Added calculation, the appropriate measure of a division's profit would be that division's pre-tax operating income.

63) Museum Corporation uses the investment center concept for the museums that it manages. Select operating data for three of its museums for 2012 are as follows:

 

 

St. Louis

Dallas

Miami

Revenue

$1,200,000

$1,500,000

$1,800,000

Operating assets

600,000

500,000

700,000

Net operating income

102,000

112,000

118,000

 

Required:

a.Compute the return on investment for each division.

b.Which museum manager is doing best based only on ROI? Why?

c.What other factors should be included when evaluating the managers?

64) Consolidated Gas Supply Corporation uses the investment center concept for the gasoline stations that it manages in the city. Consolidated has a 15% required rate of return on investment in order for a branch station to be viable. Select operating data for three of its stations for 200X are as follows:

 

 

Maple Street

Oak Street

Hickory Street

Revenue

$17,000,000

$13,500,000

$15,000,000

Operating assets

7,000,000

7,000,000

5,000,000

Net operating income

960,000

1,150,000

910,000

 

Required:

a.Compute the return on investment for each station.

b.Which station manager is doing best based only on ROI? Why?

c.Are any of the stations in danger of being closed due to lack of performance?

d.What other factors should be included when evaluating the managers?

 

65) Kase Tractor Company allows its divisions to operate as autonomous units. The operating data for 20X5 follow:

 

 

Plows

Tractors

Combines

Revenues

$2,250,000

$500,000

$4,800,000

Accounts receivable

800,000

152,500

1,435,000

Operating assets

1,000,000

400,000

1,750,000

Net operating income

220,000

60,000

480,000

Taxable income

165,000

90,000

385,000

 

Required:

a.Compute the investment turnover for each division.

b.Compute the return on sales for each division.

c.Compute the return on investment for each division.

d.Which division manager is doing best? Why?

e.What other factors should be included when evaluating the managers?

 

For parts (b) and (c) income is defined as operating income.

 

66) Provide the missing data for the following situations:

 

 

Red Division

White Division

Blue Division

Sales

$?

$10,000,000

$?

Net operating income

$200,000

$400,000

$288,000

Operating assets

$?

$?

$1,600,000

Return on investment

0.16

0.10

?

Return on sales

0.04

?

0.12

Investment turnover

?

?

1.5

 

 

67) Hargrave Products has three divisions, which operate autonomously. Their results for 20X5 were as follows:

 

 

East

West

International

Sales

$30,000,000

$40,000,000

$50,000,000

Cost of goods sold

15,000,000

25,000,000

37,000,000

Operating income

4,500,000

4,750,000

5,000,000

Investment base

30,000,000

30,500,000

31,000,000

 

The company's desired rate of return is 15%.

 

Required:

a.Compute each division's ROI. Round to three decimal places.

b.Compute each division's residual income.

 

 

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