Question

In: Accounting

Gibson Company has operating assets of $21,000,000. The company’s operating income for the most recent accounting...

Gibson Company has operating assets of $21,000,000. The company’s operating income for the most recent accounting period was $2,730,000. The Dannica Division of Gibson controls $6,830,000 of the company’s assets and earned $1,230,000 of its operating income. Gibson’s desired ROI is 11 percent. Gibson has $1,110,000 of additional funds to invest. The manager of the Dannica division believes that his division could earn $142,000 on the additional funds. The highest investment opportunity to any of the company’s other divisions is 12 percent.

Required

  1. Calculate the ROI of Dannica Division.

  1. (1) Before investment opportunity.

  2. (2) Only on the new investment opportunity.

  3. (3) Dannica total ROI if investment opportunity is accepted.

  1. Calculate the Dannica Division residual income from the new investment opportunity. If residual income is used as the sole performance measure would the manager of the Dannica Division be likely to accept or reject the additional funding

Calculate the ROI of Dannica Division. (Round your answers to 2 decimal places. (i.e., .2345 should be entered as 23.45).)
(1) Before investment opportunity.
(2) Only on the new investment opportunity.
(3) Dannica total ROI if investment opportunity is accepted.

(4) Calculate the Dannica Division residual income from the new investment opportunity. If residual income is used as the sole performance measure would the manager of the Dannica Division be likely to accept or reject the additional funding?

Solutions

Expert Solution

ekkarill92 answered 4 months ago
Next > < Previous

Related Solutions

Zachary Company has operating assets of $20,300,000. The company’s operating income for the most recent accounting...
Zachary Company has operating assets of $20,300,000. The company’s operating income for the most recent accounting period was $2,610,000. The Dannica Division of Zachary controls $8,210,000 of the company’s assets and earned $1,190,000 of its operating income. Zachary’s desired ROI is 8 percent. Zachary has $1,070,000 of additional funds to invest. The manager of the Dannica division believes that his division could earn $141,000 on the additional funds. The highest investment opportunity to any of the company’s other divisions is...
Thornton Company has operating assets of $19,500,000. The company’s operating income for the most recent accounting...
Thornton Company has operating assets of $19,500,000. The company’s operating income for the most recent accounting period was $2,690,000. The Dannica Division of Thornton controls $7,650,000 of the company’s assets and earned $1,220,000 of its operating income. Thornton’s desired ROI is 9 percent. Thornton has $1,100,000 of additional funds to invest. The manager of the Dannica division believes that his division could earn $141,000 on the additional funds. The highest investment opportunity to any of the company’s other divisions is...
Rooney Company has operating assets of $19,100,000. The company’s operating income for the most recent accounting...
Rooney Company has operating assets of $19,100,000. The company’s operating income for the most recent accounting period was $2,710,000. The Dannica Division of Rooney controls $7,940,000 of the company’s assets and earned $1,250,000 of its operating income. Rooney’s desired ROI is 8 percent. Rooney has $1,130,000 of additional funds to invest. The manager of the Dannica division believes that his division could earn $146,000 on the additional funds. The highest investment opportunity to any of the company’s other divisions is...
Income statements for Gibson Company for Year 3 and Year 4 follow: GIBSON COMPANY Income Statements...
Income statements for Gibson Company for Year 3 and Year 4 follow: GIBSON COMPANY Income Statements Year 4 Year 3 Sales $ 200,000 $ 180,000 Cost of goods sold 143,400 121,400 Selling expenses 22,000 20,000 Administrative expenses 12,900 14,900 Interest expense 3,800 5,800 Total expenses $ 182,100 $ 162,100 Income before taxes 17,900 17,900 Income taxes expense 5,400 3,500 Net income $ 12,500 $ 14,400 Required a. Perform a horizontal analysis, showing the percentage change in each income statement component...
Following is the balance sheet of Gibson Company for Year 3: GIBSON COMPANY Balance sheet Assets...
Following is the balance sheet of Gibson Company for Year 3: GIBSON COMPANY Balance sheet Assets Cash $ 15,100 Marketable securities 8,300 Accounts receivable 12,680 Inventory 10,800 Property and equipment 172,500 Accumulated depreciation (12,800 ) Total assets $ 206,580 Liabilities and Stockholders’ Equity Accounts payable $ 8,810 Current notes payable 3,080 Mortgage payable 4,050 Bonds payable 21,660 Common stock 113,200 Retained earnings 55,780 Total liabilities and stockholders’ equity $ 206,580 The average number of common stock shares outstanding during Year...
Waterway Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s...
Waterway Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s six divisions. Waterway made the following presentation to Dunn’s board of directors and suggested the Percy Division be eliminated. “If the Percy Division is eliminated,” she said, “our total profits would increase by $26,900.” The Other Five Divisions Percy Division Total Sales $1,665,000 $100,600 $1,765,600 Cost of goods sold 978,700 77,000 1,055,700 Gross profit 686,300 23,600 709,900 Operating expenses 527,200 50,500 577,700 Net income...
Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s...
Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s six divisions. Veronica made the following presentation to Dunn’s board of directors and suggested the Percy Division be eliminated. “If the Percy Division is eliminated,” she said, “our total profits would increase by $25,700.” The Other Five Divisions Percy Division Total Sales $1,663,000 $100,400 $1,763,400 Cost of goods sold 977,000 76,200 1,053,200 Gross profit 686,000 24,200 710,200 Operating expenses 528,400 49,900 578,300 Net income...
Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s...
Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s six divisions. Veronica made the following presentation to Dunn’s board of directors and suggested the Percy Division be eliminated. “If the Percy Division is eliminated,” she said, “our total profits would increase by $27,000.” The Other Five Divisions Percy Division Total Sales $1,663,000 $100,300 $1,763,300 Cost of goods sold 978,700 76,800 1,055,500 Gross profit 684,300 23,500 707,800 Operating expenses 527,700 50,500 578,200 Net income...
Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s...
Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s six divisions. Veronica made the following presentation to Dunn’s board of directors and suggested the Percy Division be eliminated. “If the Percy Division is eliminated,” she said, “our total profits would increase by $26,100.” The Other Five Divisions Percy Division Total Sales $1,665,000 $100,100 $1,765,100 Cost of goods sold 978,300 76,000 1,054,300 Gross profit 686,700 24,100 710,800 Operating expenses 526,800 50,200 577,000 Net income...
Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s...
Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s six divisions. Veronica made the following presentation to Dunn’s board of directors and suggested the Percy Division be eliminated. “If the Percy Division is eliminated,” she said, “our total profits would increase by $27,000.” The Other Five Divisions Percy Division Total Sales $1,665,000 $100,000 $1,765,000 Cost of goods sold 978,300 76,600 1,054,900 Gross profit 686,700 23,400 710,100 Operating expenses 528,100 50,400 578,500 Net income...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT