SURVEY OF ACCOUNTING 360DAY CONNECT CAR
5th Edition
ISBN: 9781260591811
Author: Edmonds
Publisher: MCG
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Chapter 15, Problem 12E
To determine
Ascertain the
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QUESTION 26
BMI’s East Division has a cost of capital of 20 percent. Selected financial information for the first year of business follows.
Sales revenue
$
1,800,000
Income
340,000
Investment (beginning of year)
1,800,000
Current liabilities (beginning of year)
240,000
R&D expendituresa
600,000
a R&D (Research and Development) is assumed to benefit three years.
All R&D is spent at the beginning of the year.
East Division’s EVA (economic value added) is:
A.
$356,000
B.
$260,000
C.
$295,000
D.
$108,000
E.
$308,000
Problem 11-17 (Algo) Return on Investment (ROI) and Residual Income [LO11-1, LO11-2]
Financial data for Joel de Paris, Incorporated, for last year follow:
Joel de Paris, IncorporatedBalance Sheet
Beginning Balance
Ending Balance
Assets
Cash
$ 139,000
$ 133,000
Accounts receivable
340,000
489,000
Inventory
560,000
487,000
Plant and equipment, net
821,000
791,000
Investment in Buisson, S.A.
395,000
434,000
Land (undeveloped)
254,000
249,000
Total assets
$ 2,509,000
$ 2,583,000
Liabilities and Stockholders' Equity
Accounts payable
$ 378,000
$ 333,000
Long-term debt
1,041,000
1,041,000
Stockholders' equity
1,090,000
1,209,000
Total liabilities and stockholders' equity
$ 2,509,000
$ 2,583,000
Joel de Paris, IncorporatedIncome Statement
Sales
$ 5,264,000
Operating expenses
4,369,120
Net operating income
894,880
Interest and taxes:
Interest expense
$ 118,000
Tax expense
207,000
325,000
Net income
$ 569,880
The…
Exercise 11-14 (Algo) 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
$ 12,920,000
$ 28,920,000
$ 26,150,000
Average operating assets
$ 3,230,000
$ 7,230,000
$ 5,230,000
Net operating income
$ 516,800
$ 462,720
$ 758,350
Minimum required rate of return
7.00%
7.50%
14.50%
Required:
1. Compute the margin, turnover, and return on investment (ROI) for each division.
2. Compute the residual income (loss) for each division.
3. Assume that each division is presented with an investment opportunity that would yield a 8% rate of return.
a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity?
b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity?
Chapter 15 Solutions
SURVEY OF ACCOUNTING 360DAY CONNECT CAR
Ch. 15 - 1. Pam Kelly says she has no faith in budgets. Her...Ch. 15 - 7. What is a responsibility center?Ch. 15 - Prob. 3QCh. 15 - Prob. 4QCh. 15 - Prob. 5QCh. 15 - 3. When are sales and cost variances favorable and...Ch. 15 - 4. Joan Mason, the marketing manager for a large...Ch. 15 - Prob. 8QCh. 15 - Prob. 9QCh. 15 - Prob. 10Q
Ch. 15 - Prob. 11QCh. 15 - 9. Minnie Divers, the manager of the marketing...Ch. 15 - 6. How do responsibility reports promote the...Ch. 15 - Prob. 14QCh. 15 - Prob. 15QCh. 15 - Prob. 16QCh. 15 - 12. How can a residual income approach to...Ch. 15 - Prob. 18QCh. 15 - Exercise 9-6A Evaluating a profit center Helen...Ch. 15 - Prob. 2ECh. 15 - Prob. 3ECh. 15 - Prob. 4ECh. 15 - Exercise 8-3A Determining amount and type...Ch. 15 - Prob. 6ECh. 15 - Exercise 8-4A Determining sales and variable cost...Ch. 15 - Exercise 8-5A Determining flexible budget...Ch. 15 - Exercise 8-9A Responsibility for the fixed cost...Ch. 15 - Prob. 10ECh. 15 - Exercise 8-7A Evaluating a decision to increase...Ch. 15 - Prob. 12ECh. 15 - Prob. 13ECh. 15 - Exercise 9-9A Residual income Climax Corporation...Ch. 15 - Residual income Gletchen Cough Drops operates two...Ch. 15 - Prob. 16ECh. 15 - Prob. 17ECh. 15 - Prob. 18PCh. 15 - Prob. 19PCh. 15 - Prob. 20PCh. 15 - Prob. 21PCh. 15 - Problem 9-20A Return on investment Sorrento...Ch. 15 - Problem 9-21A Comparing return on investment and...Ch. 15 - Comparing return on investment and residual income...Ch. 15 - ATC 8-1 Business Applications Case Static versus...Ch. 15 - Prob. 2ATCCh. 15 - Prob. 3ATCCh. 15 - ATC 9-1 Business Applications Case Analyzing...Ch. 15 - Prob. 5ATC
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- QUESTION 24 Alpha Company has shown the following financial information: Sales: $4,500,000, Total assets: $1,800,000 Cost of capital: 15% Residual income: $90,000 The company’s return on investment is: A. 15% B. 18% C. 10% D. 12% E. 20%arrow_forwardProblem 11-17 (Algo) Return on Investment (ROI) and Residual Income [LO11-1, LO11-2] Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc.Balance Sheet BeginningBalance EndingBalance Assets Cash $ 138,000 $ 134,000 Accounts receivable 342,000 483,000 Inventory 580,000 473,000 Plant and equipment, net 810,000 820,000 Investment in Buisson, S.A. 400,000 435,000 Land (undeveloped) 248,000 250,000 Total assets $ 2,518,000 $ 2,595,000 Liabilities and Stockholders' Equity Accounts payable $ 375,000 $ 340,000 Long-term debt 1,046,000 1,046,000 Stockholders' equity 1,097,000 1,209,000 Total liabilities and stockholders' equity $ 2,518,000 $ 2,595,000 Joel de Paris, Inc.Income Statement Sales $ 5,103,000 Operating expenses 4,235,490 Net operating income 867,510 Interest and taxes:…arrow_forwardExerise 11-2 Residual Income Juniper Design Ltd. of Manchester , England , is a company specializing in providing design services to residential developers. Last year the company had net operating income of $600,000 on sales of $3,000,000. The company's average operating assets for the year were $2,800,000 and its minimum required rate of return was 18%. Required : Compute the company's residual income for the year.arrow_forward
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- Problem 9-13 Two firms have sales of $1 million each. Other financial information is as follows: Firm A B EBIT $ 220,000 $ 220,000 Interest expense 40,000 60,000 Income tax 60,000 25,000 Debt 800,000 270,000 Equity 1,200,000 960,000 What are the operating profit margins and the net profit margins for these two firms? Round your answers to two decimal places. Operating profit margins: Firm A: % Firm B: % Net profit margins: Firm A: % Firm B: % What are their returns on assets and on equity? Round your answers to two decimal places. Return on assets: Firm A: % Firm B: % Return on equity: Firm A: % Firm B: %arrow_forward11. Briton Company has operating income of $36,000, invested assets of $180,000, and sales of $720,000. Use the DuPont formula to compute the return on investment and show (a) the profit margin, (b) the investment turnover, and (c) the return on investment.arrow_forward
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