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In: Accounting
Residual income, ROI, and EVA The following selected data pertain to Brannard Company's Construction Division for...
Residual income, ROI, and EVA
The following selected data pertain to Brannard Company's Construction Division for last year.
| Sales | $2,380,000 | |
| Variable costs | $1,428,000 | |
| Traceable fixed costs | $238,000 | |
| Average invested capital (assets) | $3,570,000 | |
| Current liabilities | $238,000 | |
| Required rate of return | 15% | |
| Marginal tax rate | 36% | |
| Weighted average cost of capital | 12% |
1. Calculate the residual income. $______
2. Calculate the return on investment. ______%
3. Calculate the economic value added. $______
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Residual income, ROI, and EVA The following selected data pertain to Brannard Company's Construction Division for...
Residual income, ROI, and EVA The following selected data
pertain to Brannard Company's Construction Division for last
year.
Sales $2,380,000
Variable costs $1,428,000
Traceable fixed costs $238,000
Average invested capital (assets) $3,570,000
Current liabilities $238,000
Required rate of return 15%
Marginal tax rate 36%
Weighted average cost of capital 12%
QN:
1. Calculate the residual income. $______
2. Calculate the return on investment. ______%
3. Calculate the economic value added. $______
ROI, Residual Income, and EVA with Different Bases Envision Company has a target return on capital...
ROI, Residual Income, and EVA with Different Bases Envision
Company has a target return on capital of 12 percent. The following
financial information is available for October ($ thousands):
Software Division . Consulting Division Venture Capital
Division
(Value Base) (Value Base) (Value Base)
Book Current Book Current Book Current
Sales $100,000 $100,000 $200,000 $200,000 $800,000 $800,000
Income 12,250 11,700 16,400 20,020 56,730 51,920
Assets 70,000 90,000 100,000 110,000 610,000 590,000
Liabilities 10,000 10,000 14,000 14,000 40,000 40,000
Required
a. Compute...
ROI and Residual Income: Impact of a New Investment The Mustang Division of Detroit Motors had...
ROI and Residual Income:
Impact of a New Investment
The Mustang Division of Detroit Motors had an operating income of
$900,000 and net assets of $4,000,000. Detroit Motors has a target
rate of return of 16 percent.
(a) Compute the return on investment. (Round your answer to three
decimal places.)
Answer
(b) Compute the residual income.
$Answer
(c) The Mustang Division has an opportunity to increase operating
income by $250,000 with an $750,000 investment in assets.
1. Compute the Mustang...
For the first company division listed, insert formula commands to calculate ROI and Residual income (assume...
For the first company division listed, insert formula commands
to calculate ROI and Residual income (assume the
company has a 25% target rate of return). To insert formulas,
highlight the cell where you want to place the answer. (Please
Provide Excel Formula used)
Use the “Copy” and “Paste”
commands to copy the same formulas into the appropriate cell for
each division.
Use the “%” on the “Number”
section of the menu bar to format the ROI as a percentage. Format...
A positive evaluation of a manager would include Residual Income of zero and an ROI greater...
A positive evaluation of a manager would include Residual Income
of zero and an ROI greater than the minimum requirement
1)
True.
2)
False.
Question 4
Residual income of $10,000 indicates the manager is earning
above the minimum requirement but residual income of zero ($0)
indicates the manager is earning below the minimum requirement.
1)
True.
2)
False.
Residual income should not be used to evaluate a profit
center.
1)
True.
2)
False.
The World Peace Co. has three divisions:...
What are the strengths and weaknesses of using Residual Income (RI), Return on Investment (ROI), or...
What are the strengths and weaknesses of using Residual Income
(RI), Return on Investment (ROI), or Economic Value Added (EVA®) as
methods to evaluate management performance? Which method would you
like to be assessed by, if you were a manager? Would it make a
difference if you were in charge of a department, plant, or major
division? Why or why not? Support you answer with examples.
what is criticisms of ROI and why the residual income may be a better indicator than...
what is criticisms of ROI and why the residual income may be a
better indicator than the ROI?
Exercise 11-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO11-1, LO11-2] Selected...
Exercise 11-12 Evaluating New Investments Using Return on
Investment (ROI) and Residual Income [LO11-1, LO11-2]
Selected sales and operating data for three divisions of
different structural engineering firms are given as follows:
Division A Division B Division C Sales $ 12,840,000 $ 28,840,000
$ 26,050,000 Average operating assets $ 3,210,000 $ 7,210,000 $
5,210,000 Net operating income $ 564,960 $ 346,080 $ 755,450
Minimum required rate of return 6.00 % 6.50 % 14.50 %
Required:
1. Compute the return on...
Exercise 10-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] Selected...
Exercise 10-12 Evaluating New Investments Using Return on
Investment (ROI) and Residual Income [LO10-1, LO10-2]
Selected sales and operating data for three divisions of
different structural engineering firms are given as follows:
Division A
Division B
Division C
Sales
$
12,000,000
$
14,000,000
$
25,000,000
Average operating assets
$
3,000,000
$
7,000,000
$
5,000,000
Net operating income
$
600,000
$
560,000
$
800,000
Minimum required rate of return
14
%
10
%
16
%
Required:
1. Compute the return on...
Exercise 10-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] Selected...
Exercise 10-12 Evaluating New Investments Using Return on
Investment (ROI) and Residual Income [LO10-1, LO10-2] Selected
sales and operating data for three divisions of different
structural engineering firms are given as follows: Division A
Division B Division C Sales $ 6,400,000 $ 10,400,000 $ 9,500,000
Average operating assets $ 1,600,000 $ 5,200,000 $ 2,375,000 Net
operating income $ 352,000 $ 988,000 $ 261,250 Minimum required
rate of return 18.00 % 19.00 % 15.00 %
Required:
1. Compute the return on...
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