Question

In: Accounting

Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the...

Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the current year were as follows:

Sport

Terrain

City

Revenues

$1,700,000

$800,000

$6,000,000

Current assets

230,000

40,000

410,000

Capital assets

870,000

660,000

1,590,000

Current liabilities

100,000

100,000

500,000

Net operating income

230,000

40,000

600,000

After-tax income

184,000

32,000

480,000

Weighted average cost of capital

10%

10%

10%

Required:

For each division compute (to two decimal) the:

  1. Return on sales in %
  2. Return on investment (to two decimal) based on total assets employed in %
  3. Economic value added
  4. Residual income based on net operating income

Solutions

Expert Solution

we will use following formulas

return on sales = net operating income/ net sales *100

Return on investment (to two decimal) based on total assets employed in % =Net operating income/ Total assets*100

economic value added= After tax income-[WACC*(Total assets-current liabilities)]

Residual income = operating income-(Required rate of return*Total assets)

Sport

Terrain

City

Revenues

(A)

$1,700,000

$800,000

$6,000,000

Current assets

$230,000

$40,000

$410,000

Capital assets

$870,000

$660,000

$1,590,000

Total assets (B) $1,100,000 $700,000 $2,000,000

Current liabilities (E)

$100,000

$100,000

$500,000

Net operating income (c)

$230,000

$40,000

$600,000

After-tax income (d)

$184,000

$32,000

$480,000

Weighted average cost of capital

10%

10%

10%

(1) Return on sales

(C)/(A) * 100

13.53%[$230,000/$1,700,000]*100 50%[$400,000/$800,000]*100 10%[$600,000/$6,000,000]
(2) Return on investment (to two decimal) based on total assets employed in % 20.91%[$230,000/$1,100,000]*100 57.14%[$400,000/$700,000]*100 30%[$600,000/$2,000,000]*100

EVA

[d- (b-e)*10%]

$84,000[$184,000-($1,100,000-$100,000)10%] -$28,000[$32,000-($700,000-100,000)*10%] $330,000[$480,000-($2,000,000-$500,000)*10%]

Residual Income

[C - (B*10%)

$120,000[$230,000-$1,100,000*10%] $-30,000[$40,000 - ($700,000*10%)] $400,000[$600,000-($2,000,000*10%)]

Please upvote if you find this helpful .In case of query please comment.


Related Solutions

Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the...
Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the current year were as follows: ​ ​ Sport Terrain City Revenues $2,300,000 $996,000 $6,650,000 Current assets 291,000 91,000 621,000 Capital assets 870,000 660,000 1,590,000 Current liabilities 100,000 100,000 500,000 Net operating income 230,000 40,000 600,000 After-tax income 184,000 32,000 480,000 Weighted average cost of capital 10% 10% 10% Required: For each division compute (to two decimal) the: 11. Return on sales in % 12....
Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the...
Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the current year were as follows: Sport Terrain City Revenues $2,200,000 $995,000 $6,600,000 Current assets 290,000 90,000 620,000 Capital assets 870,000 660,000 1,590,000 Current liabilities 100,000 100,000 500,000 Net operating income 230,000 40,000 600,000 After-tax income 184,000 32,000 480,000 Weighted average cost of capital 10% 10% 10% Required: For each division compute (to two decimal) the: 1. Return on sales in % 2. Return on...
Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the...
Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the current year were as follows:                                       Sport Terrain City Revenues $2,200,000 $995,000 $6,600,000 Current assets 290,000 90,000 620,000 Capital assets 870,000 660,000 1,590,000 Current liabilities 100,000 100,000 500,000 Net operating income 230,000 40,000 600,000 After-tax income 184,000 32,000 480,000 Weighted average cost of capital 10% 10% 10% Required: For each division compute (to two decimal) the: Return on sales in % Return on...
Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the...
Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the current year were as follows:                               Sport Terrain City Revenues $2,200,000 $995,000 $6,600,000 Current assets 290,000 90,000 620,000 Capital assets 870,000 660,000 1,590,000 Current liabilities 100,000 100,000 500,000 Net operating income 230,000 40,000 600,000 After-tax income 184,000 32,000 480,000 Weighted average cost of capital 10% 10% 10% Required: For each division compute (to two decimal) the: Return on sales in % Return on...
Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the...
Mary’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the current year were as follows:                             Sport Terrain City Revenues $2,400,000 $997,000 $6,660,000 Current assets 292,000 92,000 622,000 Capital assets 870,000 660,000 1,590,000 Current liabilities 100,000 100,000 500,000 Net operating income 230,000 40,000 600,000 After-tax income 184,000 32,000 480,000 Weighted average cost of capital 10% 10% 10% Required: For each division compute (to two decimal) the: Return on sales in % Return on...
Mark’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the...
Mark’s Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the current year were as follows:             Sport Terrain City Revenues $1,850,000 $920,000 $3,400,000 Current assets 268,000 155,800 1,255,000 Capital assets 1,250,000 430,000             890,000 Current liabilities 225,000 78,6000 795,000 Net operating income 228,000 250,000 350,000 After-tax income 159,600 175,000 245,000 Weighted average cost of capital 7% 7% 7% Required: For each division compute the a.     return on sales b.     return on investment based on...
Lily factory allows its departments to operate as autonomous units. Their results for the current year...
Lily factory allows its departments to operate as autonomous units. Their results for the current year were as follows:     Candy   Beverage   Packaging Revenues   $2,200,000   $670,000   $1,200,000 Current assets   320,000   112,000   535,000 Capital assets   765,000   488,000   1,320,000 Current liabilities   276,000   107,000   432,000 Net operating income   312,000   57,000   420,000 After-tax income   218,000   39,000   299,000 Weighted average cost of capital   7.5%   7.5%   7.5% Required: For each division compute the: 1.   Return on sales 2.   Return on investment based on total assets employed...
Al Huma Construction Company has three divisions that operate autonomously. Their results for 2015 are as...
Al Huma Construction Company has three divisions that operate autonomously. Their results for 2015 are as follows: A B C Sales $8,000,000 $10,000,000 $6,000,000 Contribution margin 3,000,000 6,000,000 2,500,000 Operating income 2,200,000 7,200,000 3,500,000 Investment base 10,000,000 12,000,000 14,000,000 The company's desired rate of return is 20%. The company is planning an expansion, which will require each division to increase its investments   by $3,000,000 and its income by $1,000,000. Required: Compute the current return on Investment (ROI) and Residual Income...
Assume you own and operate an auto repair shop in which you work and employ Harriet,...
Assume you own and operate an auto repair shop in which you work and employ Harriet, a mechanic whose skills are very similar to yours, at $45,000 per year. Also assume that you do not pay yourself but rather hope for a profit at the end of the year. A. would the cost of your labor be an accounting cost? explain? B. would the cost of your labor be an implicit cost? Explain? C. Would the caculated profit at the...
A manufacturing shop is designed to operate most efficiently at an output of 580 units per...
A manufacturing shop is designed to operate most efficiently at an output of 580 units per day. In the past month the plant averaged 510 units per day. What was their capacity utilization rate last month? (Round your answer to 1 decimal place.) Capacity utilization rate             %
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT