Question :
61) In an Economic Value Added calculation, the measure of : 1217132
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.
