Homework Help is Here – Start Your Trial Now!
Business
Finance
Required: 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal

Required: 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal

Essentials Of Investments
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
See similar textbooks
icon
Related questions
Question
Practice Pack
A condensed income statement for the Electronics Division of Gihbli Industries Inc. for the year ended December 31 is as follows: Sales $2,760,000 Cost of goods sold 1,847,600 Gross profit $ 912,400 Operating expenses 526,000 Income from operations $ 386,400 Invested assets $2,300,000 Assume that the Electronics Division received no charges from service departments. The president of Gihbli Industries Inc. has indicated that the division's return on a $2,300,000 investment must be increased to at least 19.6% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of $460,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by $82,800. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $488,800, reduce cost of goods sold by $326,600, and reduce operating expenses by $143,800. Assets of $1,164,500 would be transferred to other divisions at no gain or loss. Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $303,600 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by $1,150,000 for the year. Required: 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal
Transcribed Image Text:A condensed income statement for the Electronics Division of Gihbli Industries Inc. for the year ended December 31 is as follows: Sales $2,760,000 Cost of goods sold 1,847,600 Gross profit $ 912,400 Operating expenses 526,000 Income from operations $ 386,400 Invested assets $2,300,000 Assume that the Electronics Division received no charges from service departments. The president of Gihbli Industries Inc. has indicated that the division's return on a $2,300,000 investment must be increased to at least 19.6% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of $460,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by $82,800. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $488,800, reduce cost of goods sold by $326,600, and reduce operating expenses by $143,800. Assets of $1,164,500 would be transferred to other divisions at no gain or loss. Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $303,600 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by $1,150,000 for the year. Required: 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal
Chapter 24 Graded еBook Invested assets 2,400,000 2,000,000 1,300,000 The management of E.F. Lynch Company is evaluating each division as a basis for planning a future expansion of operations. Required: 1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges. E.F. Lynch Company Divisional Income Statements For the Year Ended June 30, 20Y8 Mutual Fund Division Electronic Brokerage Division Investment Banking Division Fee revenue 660,000 V 680,000 640,000 Operating expenses 324,000 v 284,000 452,800 336,000 V 396,000 v Income from operations 187,200 Feedback V Check My Work 1. For each division, subtract operating expenses from fee revenue. 2. Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and return on investment for each division. Round your answers to one decimal place. Division Profit Margin Investment Turnover ROI Mutual Fund Division 50.9 v % 27.5 x 14 x % Electronic Brokerage Division 58.2 v % 34 x 19.8 x % Investment Banking Division 29.3 V % 49.2 X 14.4| Х %
Transcribed Image Text:Chapter 24 Graded еBook Invested assets 2,400,000 2,000,000 1,300,000 The management of E.F. Lynch Company is evaluating each division as a basis for planning a future expansion of operations. Required: 1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges. E.F. Lynch Company Divisional Income Statements For the Year Ended June 30, 20Y8 Mutual Fund Division Electronic Brokerage Division Investment Banking Division Fee revenue 660,000 V 680,000 640,000 Operating expenses 324,000 v 284,000 452,800 336,000 V 396,000 v Income from operations 187,200 Feedback V Check My Work 1. For each division, subtract operating expenses from fee revenue. 2. Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and return on investment for each division. Round your answers to one decimal place. Division Profit Margin Investment Turnover ROI Mutual Fund Division 50.9 v % 27.5 x 14 x % Electronic Brokerage Division 58.2 v % 34 x 19.8 x % Investment Banking Division 29.3 V % 49.2 X 14.4| Х %
Expert Solution
trending now

Trending now

This is a popular solution!

video

Learn your way

Includes step-by-step video

steps

Step by step

Solved in 2 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Divisional performance management
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS