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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 the return on investment using both book and current values for each division. Round answers to three decimal places.

Book Value Current Value

Software Answer ? Answer ?

Consulting Answer ? Answer ?

Venture Capital Answer ? Answer ?

b. Compute the residual income for both book and current values for each division. Use negative signs with answers, when appropriate.

Book Value Current Value

Software $Answer 3,850 $Answer 900

Consulting Answer 4,400 . Answer 6,820

Venture Capital Answer (16,470) Answer (1,880)

c. Compute the economic value added income for both book and current values for each division if the tax rate is 30 percent and the weighted average cost of capital is 10 percent. Use negative signs with answers, when appropriate. Book Value Current Value

Software $Answer ? $Answer ?

Consulting Answer ? Answer ?

Venture Capital Answer ? Answer ?

Solutions

Expert Solution

ekkarill92 answered 1 year ago
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