Exercise 19-27 (Algo) Return on Investment; Residual Income; EVA® [LO 19-1, 19-2, 19-3] Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVAⓇ), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Division Soap products Skin lotions Hair products Minimum desired rate of return Cost of capital Required: Operating Income $ 3,242,000 2,742,000 Average Total Assets $ 59,992,000 32,992,000 54,992,000 Value of Intangibles $ 1,492,000 7,992,000 992,000 4,992,000 5.00% 4.00% Intangibles' Effect on Income $ 992,000 5,992,000 692,000 1. Calculate the return on investment (ROI) for each division. (Round your answers to 2 decimal places. (i.e. .1234 = 12.34%)) 2. Calculate the residual income (RI) for each division. 3. Calculate EVA for each division. 1. Return on investment (ROI) 2. Residual income (RI) 3. EVA Ⓡ Soap Products Skin Lotions Hair Products % % %
Exercise 19-27 (Algo) Return on Investment; Residual Income; EVA® [LO 19-1, 19-2, 19-3] Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVAⓇ), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Division Soap products Skin lotions Hair products Minimum desired rate of return Cost of capital Required: Operating Income $ 3,242,000 2,742,000 Average Total Assets $ 59,992,000 32,992,000 54,992,000 Value of Intangibles $ 1,492,000 7,992,000 992,000 4,992,000 5.00% 4.00% Intangibles' Effect on Income $ 992,000 5,992,000 692,000 1. Calculate the return on investment (ROI) for each division. (Round your answers to 2 decimal places. (i.e. .1234 = 12.34%)) 2. Calculate the residual income (RI) for each division. 3. Calculate EVA for each division. 1. Return on investment (ROI) 2. Residual income (RI) 3. EVA Ⓡ Soap Products Skin Lotions Hair Products % % %
Accounting (Text Only)
26th Edition
ISBN:9781285743615
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter24: Performance Evaluation For Decentralized Operations
Section: Chapter Questions
Problem 24.3CP: Evaluating divisional performance The three divisions of Yummy Foods are Snack Goods, Cereal, and...
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