(a) SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT (b) How would the divisi
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(a)
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(b)
How would the divisions be ranked (from best to worst performance) if the evaluation were based on residual income? (Round calculations and final answer to 0 decimal places, e.g. 5,025.)
Top management of the Gates Corporation is trying to construct a performance evaluation system to use to evaluate each of its three divisions. This past year’s financial data are as follows:Division A Division B Division C Total assets $933,000 $18,730,000 $11,120,000 Noninterest-bearing current liabilities 52,200 2,151,000 1,046,000 Net income 188,000 1,812,000 1,387,000 Interest expense 52,200 1,948,000 1,240,000 Tax rate 40% 40% 40% Required rate of return 10% 12% 14%
Explanation / Answer
Answer Division A , Division C, Division B
Based on Residual Income it is Division B, Division C, Division A
ROI (%) A/B*100 21.34% 10.93% 13.77% Net Income (A) 188,000 1,812,000 1,387,000 Total Investment (B) 880,800 16,579,000 10,074,000 (Total Asset - Non interest bearing current liabilities)Related Questions
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