Calculate the residual income for each division

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Reference no: EM13875344

ROI, Residual Income, and EVA® Jean Cooper Cosmetics (JCC) 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 JCC'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 are as given below.

Division

Operating Income

Average Total Assets

Value of Intangibles

Intangibles' Effect on Income

Soap products

$3,250,000

$60,000,000

$1,500,000

$1,000,000

Skin lotions

2,750,000

33,000,000

8,000,000

6,000,000

Hair products

5,000,000

55,000,000

1,000,000

700,000

Minimum desired rate of return 5.00%

Cost of capital 4.00%

Required

1. Calculate the ROI for each division.

2. Calculate the residual income (RI) for each division.

3. Calculate EVA for each division and comment on your answers for ROI, RI, and EVA.

Reference no: EM13875344

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