Question

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 investment (to two decimal) based on total assets employed in %

3. Economic value added

4. Residual income based on net operating income

Answer 1