Selected data for two divisions of the Royal Company are given below:
South North
Division Division
Net sales for year $4,000,000 $7,000,000
Average total assets for year $2,000,000 $2,000,000
Operating income before taxes for year $360,000 $420,000
Tax rate 20% 20%
Average after-tax cost of capital 10% 12%
Required:
A) Compute the ROI for each division. Income is defined as operating income after taxes.
B) Based on the ROI, which division manager should receive a bonus? Bonuses are awarded if ROI equals or exceeds 15 percent.
C) Compute the residual income for each division. Invested capital is defined as total assets.
D) Based on the residual income, which division manager should receive a bonus? Bonuses are awarded if residual income is greater than $100,000.
A) South Division: 14.4% = ($360,000 × 80%) / $2,000,000
North Division: 16.8% = ($420,000 × 80%) / $2,000,000
B) North Division
C) South Division: $88,000 = ($360,000 × 80%) - (10% × $2,000,000 )
North Division: $96,000 = ($420,000 × 80%) - (12% × $2,000,000 )
D) Neither division manager.
You might also like to view...
________ is a key industrial marketing strategy in bidding to build large-scale industrial products such as dams, pipelines, etc
A) Systems contracting B) Systems buying C) Systems selling D) Solutions buying E) Turnkey logistics
Foreign stock markets are frequently characterized by controlling shareholders for the individual publicly traded firms. Which of the following is NOT identified by the authors as typical controlling shareholders?
A) the government (for example, privatized utilities) B) institutions (such as banks in Germany) C) family (such as in France) D) All of the above were identified by the authors as controlling shareholders.