Munabhai Navarre Energy Research specializes in developing and commercializing new products. It is organized into two divisions, which arebased on the products they produce. Canal Division is smaller, and the lives of the products it produces tend to be shorter than thoseproduced by the larger Lake Division. Selected financial data for the past year are shown in the following table. Divisional investment isas of the beginning of the year. Navarre uses an 8 percent cost of capital and beginning-of-the-year investment when computing ROIand residual income. Ignore income taxes.Allocated corporate overheadCost of goods soldDivisional investmentR&DSalesSelling, general and administrative(excluding R&D)DivisionCanal ($000)$ 4,16020,12061,300Lake ($000)$ 9,00028,800394,00012,60031,40052,4004,680190,0007,400R&D is assumed to have a three-year life in Canal Division and an eight-year life in Lake Division. All R&D expenditures are spent at thebeginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D investments had taken place before thisyear.Required:a. Compute EVA for the two divisions.Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar amount. Enter your answers inthousands of dollars.CanalDivisionLakeDivisionEconomic value added

Economic value added is a measurement of residual income/economic profit over and above of required…

Answered: Navarre Energy Research specializes in…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter24: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 4TIF: The three divisions of Yummy Foods are Snack Goods, Cereal, and Frozen Foods. The divisions are...

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Navarre Energy Research specializes in developing and commercializing new products. It is organized into two divisions, which are based on the products they produce. Canal Division is smaller, and the lives of the products it produces tend to be shorter than those produced by the larger Lake Division. Selected financial data for the past year are shown in the following table. Divisional investment is as of the beginning of the year. Navarre uses an 8 percent cost of capital and beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. Division Canal ($000) Lake ($000) Allocated corporate overhead $ 4,100 $ 9,600 Cost of goods sold 20,000 30,000 Divisional investment 60,100 400,000 R&D 12,000 32,000 Sales 50,000 100,000 Selling, general and administrative (excluding R&D) 4,500 8,000 R&D is assumed to have a three-year life in Canal Division and an eight-year life in Lake Division. All R&D expenditures are spent…
Navarre Energy Research specializes in developing and commercializing new products. It is organized into two divisions, which are based on the products they produce. Canal Division is smaller, and the lives of the products it produces tend to be shorter than those produced by the larger Lake Division. Selected financial data for the past year are shown in the following table. Divisional investment is as of the beginning of the year. Navarre uses a(n) 8 percent cost of capital and beginning-of- the-year investment when computing ROI and residual income. Ignore income taxes. Allocated corporate overhead Cost of goods sold Divisional investment R&D Sales Selling, general and administrative. (excluding R&D) Division Canal ($000) $4,900 28,000 60,900 12,800 66,008 5,300 Lake (5000) $ 10,000 38,800 400,000 72,000 180,000 7,600 R&D is assumed to have a three-year life in Canal Division and an eight-year life in Lake Division. All R&D expenditures are spent at the beginning of the year. Assume…
Navarre Energy Research specializes in developing and commercializing new products. It is organized into two divisions, which are based on the products they produce. Canal Division is smaller, and the lives of the products it produces tend to be shorter than those produced by the larger Lake Division. Selected financial data for the past year are shown in the following table. Divisional investment is as of the beginning of the year. Navarre uses an 8 percent cost of capital and beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. Division Canal ($000) Lake ($000) Allocated corporate overhead $ 4,100 $ 9,600 Cost of goods sold 20,000 30,000 Divisional investment 60,100 400,000 R&D 12,000 32,000 Sales 50,000 100,000 Selling, general and administrative (excluding R&D) 4,500 8,000 Required: Compute divisional income for the two divisions. Calculate the operating margin, which is equivalent to the return on sales,…
Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, which are based on the products they produce. AC Division is smaller and the life of the products it produces tend to be shorter than those produced by the larger SO Division. Selected financial data for the past year is shown as follows. Divisional investment is as of the beginning of the year. Colonial Pharmaceuticals uses a 8 percent cost of capital and uses beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. Allocated corp. overhead Cost of goods sold Divisional investment R&D Sales SG&A AC Division $ 670 3,340 10,400 2,700 10,800 910 SO Division $ 1,100 5,600 73,000 3,600 20,000 830
Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, which are based on the products they produce. AC Division is smaller and the life of the products it produces tend to be shorter than those produced by the larger SO Division. Selected financial data for the past year is shown as follows. Divisional investment is as of the beginning of the year. Colonial Pharmaceuticals uses a 9 percent cost of capital and uses beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. so Division $ 1,500 AC Division $ 630 Allocated corp. overhead Cost of goods sold 3,260 7,600 77,000 Divisional investment 9,600 R&D 4,200 1,875 9,200 Sales 20,600 SG&A 790 1,230 R&D is assumed to have a two-year life in the AC Division and a nine-year life in the SO division. All R&D expenditures are spent at the beginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D investments had taken…
Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, which are based on the products they produce. AC Division is smaller and the life of the products it produces tend to be shorter than those produced by the larger SO Division. Selected financial data for the past year is shown as follows. Divisional Investment is as of the beginning of the year. Colonial Pharmaceuticals uses a 10 percent cost of capital and uses beginning-of-the-year Investment when computing ROI and residual income. Ignore Income taxes. Allocated corp. overhead Cost of goods sold Divisional investment R&D Sales SG&A AC Division $ 620 3,240 9,400 2,200 8,800 760 SO Division $ 1,600 6,600 78,000 3,400 18,000 1,330 Required: a. Compute divisional Income for the two divisions. b. Calculate the operating margin, which is equivalent to the return on sales, for the two divisions. c. Calculate ROI for the two divisions. d. Compute residual income for the two divisions.
Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, which are based on the products they produce. AC Division is smaller and the life of the products it produces tend to be shorter than those produced by the larger SO Division. Selected financial data for the past year is shown as follows. Divisional investment is as of the beginning of the year. Colonial Pharmaceuticals uses a 8 percent cost of capital and uses beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. AC Division so Division $ 1,050 Allocated corp. overhead Cost of goods sold Divisional investment $ 675 3,350 10,500 5,500 72,500 3,600 19,500 R&D 2,750 Sales 11,000 SG&A 925 780 R&D is assumed to have a two-year life in the AC Division and a nine-year life in the SO division. All R&D expenditures are spent at the beginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D investments had taken…
Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost of capital of 10 percent. Selected financial information (in thousands of dollars) for the first year of business follows: Sales revenue Income Investment (beginning of year) Current liabilities (beginning of year) R&D expendituresa Divisions aR&D is assumed to benefit two periods. All R&D is spent at the beginning of the year. Required: a-1. Evaluate the performance of the two divisions assuming BMI uses return on investment (ROI). (Round your final answers to nearest whole percentage value.) East West ROI O East O West % % a-2. Which division had the better performance? East $2,100 750 3,100 310 1,050 acer
Lasky Manufacturing has two divisions: Carolinas and Northeast. Lasky has a cost of capital of 7.5 percent. Selected financial information (in thousands of dollars) for the first year of business follows: Sales revenue Income Divisional assets (beginning of year) Current liabilities (beginning of year) R&D expendituresa aR&D is assumed to benefit two periods. All R&D is spent at the beginning of the year. Required: a-1. Evaluate the performance of the two divisions assuming Lasky Manufacturing uses economic value added (EVA). a-2. Which division had the better performance? Complete this question by entering your answers in the tabs below. Req A1 Divisions Req A2 Carolinas Northeast Carolinas $ 1,100 190 1,000 190 550 Evaluate the performance of the two divisions assuming Lasky Manufacturing uses economic value added (EVA). Note: Note: Enter answers in thousands of dollars. Round your answers to 1 decimal place. EVA
Lasky Manufacturing has two divisions: Carolinas and Northeast. Lasky has a cost of capital of 7.5 percent. Selected financial information (in thousands of dollars) for the first year of business follows: Sales revenue Income Divisional assets (beginning of year) Current liabilities (beginning of year) R&D expendituresa aR&D is assumed to benefit two periods. All R&D is spent at the beginning of the year. Required: a-1. Evaluate the performance of the two divisions assuming Lasky uses return on investment (ROI). a-2. Which division had the better performance? Complete this question by entering your answers in the tabs below. Req A1 Divisions Carolinas $2,400 160 1,000 320 1,200 Req A2 Carolinas Northeast Evaluate the performance of the two divisions assuming Lasky uses return on investment (ROI). Note: Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1). Northeast $ 7,200 372 1,500 320 1,120 ROI % %
Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows: Sales revenue Cost of goods sold Miscellaneous operating expenses Interest and taxes Average invested assets Wescott is considering an expansion project in the upcoming year that will cost $5.7 million and return $521,000 per year. The project would be implemented by only one of the three divisions. Complete this question by entering your answers in the tabs below. Req 1 Required: 1. Compute the ROI for each division. 2. Compute the residual income for each division. 3. Rank the divisions according to the ROI and residual income of each. 4-a. Compute the return on investment on the proposed expansion project. 4-b. Is this an acceptable project? 5. Without any additional calculations, state whether the proposed project would increase or decrease each division's ROI. 6. Compute the new ROI and residual income for each division if…
Conner Manufacturing has two major divisions. Management wants to compare their relative performance. Information related to the two divisions is as follows: Division 1: Sales: Expenses: Asset investment: $200,000 $150,000 $1,000,000 Division 2: Sales: $45,000 Expenses: $35,000 Asset investment: $200,000 Conner currently requires investments to meet a rate of return on asset investment of 5%. Which division has the greatest level of "residual income"? Select one: O a. Division 1 O b. Division 2 O c. Both divisions have the same return on investment ratio

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