Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the threedivisions are as follows:Sales revenueCost of goods soldMiscellaneous operating expensesInterest and taxesAverage invested assetsWescott is considering an expansion project in the upcoming year that will cost $5.7 million and return $521,000 per year. The projectwould be implemented by only one of the three divisions.Complete this question by entering your answers in the tabs below.Req 1Required:1. Compute the ROI for each division.2. Compute the residual income for each division.3. Rank the divisions according to the ROI and residual income of each.4-a. Compute the return on investment on the proposed expansion project.4-b. Is this an acceptable project?5. Without any additional calculations, state whether the proposed project would increase or decrease each division's ROI.6. Compute the new ROI and residual income for each division if the project was implemented within that division.Req 2Division ADivision BDivision CROIDivision A$ 1,290,000797,00071,000 -55,0009,511,000Req 3%%%Req 4A< Reg 1Req 4BDivision B$ 1,053,000773,00059,00048,0002,259,000Req 5Compute the ROI for each division.Note: Enter your answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)Division C$ 1,052,000764,00060,00048,0003,716,000Req 2 >Req 6

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Answered: Wescott Company has three divisions: A,…

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

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INVESTMENT CENTER: The AAA Division has permanent current assets of P50,000 and operating non-current assets of 350,000. It provides annual operating income after tax of P100,000. Its cost of capital is 15% but the minimum required rate of return by the entity is 16%. How much is its current return on investment? How much is its economic value added? How much is its residual income? Assume that the Senna Division is presented by the head office to manage a P60,000 investment option yielding a 20% return on its investment. Should the Division agree to manage this investment opportunity? Yes, because the ROI will increase. Yes, because the RI and EVA will increase. No, because the ROI will decrease. No, because the RI and EVA will decrease.
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 % %
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? Req A1 Complete this question by entering your answers in the tabs below. Divisions Carolinas $ 2,100 170 1,000 290 1,050 Req A2 Carolinas Northeast Northeast $ 6,600 372 1,500 290 970 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). ROI % %
Shaq Company operates with three segments: Louisiana, Orlando, and Los Angeles.Data regarding these segments is as follows: LouisianaSegment OrlandoSegment Los AngelesSegment Contribution to indirect expenses $328,500 $207,600 $155,500 Assets directly used & identified with segment $1,858,700 $1,410,000 $742,600 1. Calculate the return on investment for each segment. Rank them from highest to lowest. Round percent to 1 decimal place. LouisianaSegment OrlandoSegment Los AngelesSegment Segment Net Income Investment base (assets) ROI (%) Rankings (1,2, or 3, where 1 is the best) 2. Assume the cost of capital is 14% for a segment. Calculate residual income for each segment. Rank them from highest to lowest. Round percent to 1 decimal place. LouisianaSegment OrlandoSegment Los AngelesSegment Segment Net Income Investment base (assets) Cost of Capital (%) Minimum Income Residual Income…
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
Coolbrook company has the following information available for the past year:(Chart in photo below) Required:1. calculate return on Investment (ROI) and residual income for each divison for the last year2. Recalculate ROI and residual income for the division for each independent situration that follows:a.) operating income increases by 9 percentb.) operating Income decreases by 9 percentc.) The company invests 255,000 in each division, an amount that generates 106,000 additional income per division.d.) Coolbrook changes its hurdle rate to 5.26 percent
Altoona Technologies, Inc. (ATI) has three divisions. ATI has a desired rate of return of 12.5 percent. The operating assets and income for each division are as follows: Operating Operating Divisions Assets Income $ 96,000 90,000 Printer $ 540,000 Copier 810,000 Fax 360,000 54,000 Total $1,710,000 $240,000 ATI headquarters has $120,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROls: Expected ROIS for Additional Investments Divisions Printer 14.0% Copier 13.0% Fax 12.0% Required a-1. Calculate the ROI for each division. a-2. Which division manager is currently producing the highest ROI? b. Based on ROI, which division manager would be most eager to accept the $120,000 of investment funds? c. Based on ROI, which division manager would be least likely to accept the $120,000 of investment funds? d. Which division offers the best investment opportunity for ATI? g. Calculate…
For its three investment centers, Concord Company accumulates the following data: I Sales $2,280,000 $4,560,000 $4,560,000 Controllable margin 1,596,000 2,280,000 4,134,400 Average operating assets 5,700,000 8,350,000 11,400,000 The company expects the following changes for investment centers I, II, and III in the next year: investment center I to increase sales 15%, investment center II to decrease controllable fixed costs $392,000, and investment center III to decrease average operating assets $520,000. Compute the expected return on investment (ROI) for each center. Assume investment center I has a contribution margin percentage of 70%. (Round ROI to 1 decimal place, e.g. 1.5%.) The expected return on investment I % % III %
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 expenditures Carolinas $ 800 160 Northeast $ 4,000 312 1,000 1,500 160 160 400 320 R&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?
Stuart Technologies, Inc. has three divisions. Stuart has a desired rate of return of 11.0 percent. The operating assets and income for each division are as follows: Operating Operating Divisions Assets Income $ 690,000 960,000 $110,400 100,800 68,340 Printer Сopier Fax 510,000 Total $2,160,000 $279,540 Stuart headquarters has $135,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROls: Expected ROIS for Additional Investments Divisions Printer 12.5% Сopier 11.5% Fax 10.5% Required a-1. Calculate the ROI for each division. a-2. Which division manager is currently producing the highest ROI? b. Based on ROI, which division manager would be most eager to accept the $135,000 of investment funds? c. Based on ROI, which division manager would be least likely to accept the $135,000 of investment funds? d. Which division offers the best investment opportunity for Stuart? g. Calculate…
The Best Medical Supply Company has two divisions that operate independently of one another. The financial data for the year 2020 reported the following results: North South Sales Operating income Invested capital P300,000,000 75,000,000 P250,000,000 55,000,000 500,000,000 600,000,000 The company's desired rate of return is 10%. Which division has the best return on investment and which division has the best residual income figure, respectively? North, North South, North North, South South, South

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