The Global Products Corporation has three subsidiaries.
a. Which division has the lowest return on sales?
b. Which division has the highest
c. Compute the return on assets for the entire corporation.
d. If the
a.
To calculate: The division with the lowest return on sales.
Introduction:
Return on sales:
It is used to compute the ratio which shows the degree to which a company makes money from its business activities. It is calculated by dividing the net income by sales.
Answer to Problem 29P
The medical supply division is the one with the lowest return on sales, that is, 8.48%. Whereas, the return on sales of heavy machinery division is 9.90% and that of electronics is 8.50%.
Explanation of Solution
Calculation of the return on sales of medical supplies:
Calculation of the return on sales of heavy machinery:
Calculation of the return on sales of electronics:
b.
To determine: The division with the highest ROA.
Introduction:
Return on assets (ROA):
It is used to compute the ratio which shows the degree to which a company makes money from its business activities. It is computed by dividing the net income of a company by its sales.
Answer to Problem 29P
The medical supply division is the one with the highest ROA, that is, 20.38%. Whereas, the ROA of heavy machinery division is 6.76% and that of electronics is 11.26%.
Explanation of Solution
The calculation of the ROA of medical supplies:
The calculation of the ROA of heavy machinery:
The calculation of the ROA of electronics:
c.
To calculate: The ROA for the entire corporation.
Introduction:
Return on assets (ROA):
It is used to compute the ratio which shows the degree to which a company makes money from its business activities. It is computed by dividing the net income of a company by its sales.
Answer to Problem 29P
The ROA for entire corporation is 13.03%.
Explanation of Solution
Calculation of the ROA for the entire corporation:
Working Notes:
Calculation of the corporate net income:
Calculation of the corporate total assets:
d.
To calculate: For the whole corporation, the new ROA.
Introduction:
Return on assets (ROA):
It is used to compute the ratio which shows the degree to which a company makes money from its business activities. It is computed by dividing the net income of a company by its sales.
Answer to Problem 29P
The new return on assets for the corporation as a whole is 18.81%.
Explanation of Solution
Calculation of new return on assets for the entire corporation:
Working Notes:
Calculation of the return on redeployed assets of heavy machinery:
Calculation of the corporate net income:
Calculation of the corporate total assets:
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Chapter 3 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
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