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What is the toy divisions economic value added

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Reference no: EM132516949

The Tandem division of Great Adventures Cycle Company had the following results last year (in thousands):

Sales                    $6,000,000
Operating Income   $280,000
Total Assets            ? ? ?
Current Liabilities    $500,000

  • Management's target rate of return is 8% and the weighted average cost of capital is 6%. Tandem's effective tax rate is 30%.

Question 1: If Tandem's Asset Turnover = 4.0, what is the company's Return on Investment?

A. Tandem's ROI is: 8.00%

B. Tandem's ROI is: 4.67%

C. ROI cannot be calculated with the given information.

D. Tandem's ROI is: 14.00%

E. Tandem's ROI is: 18.67%

Question 2: The following information relates to the Miracle Corporation and its Toy Division:

Toy Division Sales $8,000,000
Toy Division Operating Income ? ? ?
Toy Division Total Assets $3,000,000
Toy Division Current Liabilities $750,000
Corporate rate of return target 12%
Corporate weighted average cost of capital 8%
Corporate effective tax rate 25%
Residual Income $120,000

Based on the above information, what is the Toy Division's Economic Value added?

A. The Toy Division's Economic Value Added (EVA) is $180,000.

B. EVA cannot be calculated with the given information.

C. The Toy Division's Economic Value Added (EVA) is $ 90,000.

D. The Toy Division's Economic Value Added (EVA) is $240,000.

E. The Toy Division's Economic Value Added (EVA) is $120,000.

Reference no: EM132516949

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