Reference no: EM13754395
Sapsora Company uses ROI to measure the performance of its operating divisions and to reward division managers. A summary of the annual reports from two divisions is shown below. The company’s weighted-average cost of capital is 12 percent.
Division A Division B
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,000,000 $8,750,000
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 1,750,000
After-tax operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,180,000
ROI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25% 14%
a. Which division is more profitable?
b. Would EVA more clearly show the relative contribution of the two divisions to the company as a whole? Show the computations.
c. Suppose the manager of Division A was offered a one-year project that would increase his investment base by $250,000 and show a profit of $37,500. Would the manager choose to invest in the new project?
|
To ensure the tax deduction always being realised
: A firm has an expected before tax earnings of $1000 a year in perpetuity, The firm can borrow at the rate of 8%. The corporate tax rate is 40%. To ensure the tax deduction always being realised in the same year of the interest payment, the firm shoul..
|
|
Income statements under absorption costing and variable cost
: The demand for solvent, one of numerous products manufactured by heyward Industries Inc., has dropped sharply because of recent competition from a similar product. The company’s chemists are currently completing tests of various new formulas, and it ..
|
|
Exchange is based on the nominal discount rate
: Anurag receives an annuity that pays $1,000 at the end of each month. He wishes to replace it with an annuity that has the same term and has only one payment each year, and that payment should be at the beginning of the year. How much should the paym..
|
|
Ethical is sometimes not legal in accounting business
: Describe a situation where in an action may be legal but not ethical and what may be ethical is sometimes not legal in Accounting Business.
|
|
Performance of its operating divisions-to reward divisions
: Sapsora Company uses ROI to measure the performance of its operating divisions and to reward division managers. A summary of the annual reports from two divisions is shown below. The company’s weighted-average cost of capital is 12 percent.
|
|
Consists of two departments-blending and filling
: Rocky Springs Beverage Company consists of two departments, Blending and Filling. The Filling Department received 55,600 ounces from the Blending Department. During the period, the Filling Department completed 61,300 ounces, including 9,000 ounces of..
|
|
What is the role of the board of directors-audit committees
: What is the role of the Board of Directors, audit committees, and auditors in public companies? What could they have done to prevent fraud?
|
|
Department supply to assist management with this decision
: The top management of a fast-food hamburger chain is considering installing point-of-sale machines that will allow customers to pay for food with an automated teller-machine card. Previously, the restaurant has accepted only cash. What information co..
|
|
A formal toulmin outline
: Because Toulmin is a difficult mode intellectually, you will be writing a formal outline defending one of the positions listed below. I want you to focus your attention on building your reasons, so only an outline is required, though you still need t..
|