Question.99 - Accounting - Exercise 12-14 1. Cornerstone Exercise 12-14 (Algorithmic) Calculating Residual Income Pelican Manufacturing earned operating income last year as shown in the following income statement: Sales $531,250 Cost of goods sold 280,000 ???Gross margin $251,250 Selling and administrative expense 184,700 ???Operating income $66,550 At the beginning of the year, the value of operating assets was $390,000. At the end of the year, the value of operating assets was $460,000. Pelican requires a minimum rate of return of 10 percent. For Pelican, calculate: 1. Average operating assets $ ? _________________ ? 2. Residual income $ ? _________________ ? 2. Cornerstone Exercise 12-15 (Algorithmic) Calculating Economic Value Added East Mullett Manufacturing earned net income last year as shown in the following income statement: Total capital employed equaled $389,000. East Mullett's actual cost of capital is 8 percent. Calculate the EVA for East Mullett Manufacturing. If required, round your answer to nearest whole number.$ ? _________________ ? 3. eBookeBookeBook Exercise 12-23 (Algorithmic) The Home Products Division of Schipper Company had operating income last year of $112,400 and operating assets of $750,000. Schipper's minimum acceptable rate of return is 10 percent. Calculate the residual income for the Home Products Division. Round your answer to the nearest dollar. Residual income = $ ? _________________ ? 4. eBookeBookeBook SpreadsheetSpreadsheetSpreadsheet Problem 12-34 Return on Investment and Investment Decisions You may use the attached spreadsheet to help you complete this activity, but you are not required to do so. You will find the spreadsheet by clicking on the link in the drop-down menu above. Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new producta weather radio that would put out a warning if the county in which the listener lived were under a severe thunderstorm or tornado alert. The budgeted income of the division was $725,000 with operating assets of $3,625,000. The proposed investment would add income of $640,000 and would require an additional investment in equipment of $4,000,000. The minimum required return on investment for the company is 12 percent. If required, round your answers to two decimal places. 1. ?Compute the ROI of the following (in percent): a. The division if the radio project is not undertaken. ? _________________ ? % b. The radio project alone. ? _________________ ? % c. The division if the radio project is undertaken. ? _________________ ? % 2. ?Compute the residual income of the following: a. The division if the radio project is not undertaken. $?? ? _________________ ? b. The radio project alone. $?? ? _________________ ? c. The division if the radio project is undertaken. $?? ? _________________ ? 3. ?Conceptual Connection: Do you suppose that Leslie will decide to invest in the new radio? Why or why not? The input in the box below will not be graded, but may be reviewed and considered by your instructor.? _________________ ? 5. eBookeBookeBook Problem 12-36 Return on Investment for Multiple Investments, Residual Income Links to learning objectives referenced by this question can be accessed in the "Additional Resources" drop-down menu above. The manager of a division that produces add-on products for the automobile industry has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans and minivans. The second is a turbocharger. Without the investments, the division will have average assets for the coming year of $28.9 million and expected operating income of $4.335 million. The outlay required for each investment and the expected operating incomes are as follows: 1. ?Compute the ROI for each investment project. Round to two decimal places. Air conditioner, ROI ? _________________ ? % Turbocharger, ROI ? _________________ ? % 2. ?Compute the budgeted divisional ROI for each of the following four alternatives. Round to two decimal places. a. The air conditioner investment is made. ? _________________ ? % b. The turbocharger investment is made. ? _________________ ? % c. Both investments are made. ? _________________ ? % d. Neither additional investment is made. ? _________________ ? % 3. ?Conceptual Connection: Assuming that divisional managers are evaluated and rewarded on the basis of ROI performance, which alternative do you think the divisional manager will choose?? _________________ ? 4. ?Conceptual Connection: Suppose that the company sets a minimum required rate of return equal to 14 percent. Calculate the residual income for each of the following four alternatives: a. The air conditioner investment is made. $?? ? _________________ ? b. The turbocharger investment is made. $?? ? _________________ ? c. Both investments are made. $?? ? _________________ ? d. Neither additional investment is made. $?? ? _________________ ? Based on residual income, which investment(s) will the manager make?? _________________ ? 5. ?Conceptual Connection: Suppose that the company sets a minimum required rate of return equal to 10 percent. Calculate the residual income for each of the following four alternatives: a. The air conditioner investment is made. $?? ? _________________ ? b. The turbocharger investment is made. $?? ? _________________ ? c. Both investments are made. $?? ? _________________ ? d. Neither additional investment is made. $?? ? _________________ ? Based on residual income, which investment(s) will the manager make?? _________________ ? Why does your answer differ from your answer in Requirement 3? The input in the box below will not be graded, but may be reviewed and considered by your instructor.? _________________ ?
Answer Below:
Cornerstone xxxxxxxx - xxxxxxxxxxx Calculating xxxxxxxx Income xxxxxxx Manufacturing xxxxxx operating xxxxxx last xxxx as xxxxx in xxx following xxxxxx statement xxxxx Cost xx goods xxxx Gross xxxxxx Selling xxx administrative xxxxxxx Operating xxxxxx At xxx beginning xx the xxxx the xxxxx of xxxxxxxxx assets xxx At xxx end xx the xxxx the xxxxx of xxxxxxxxx assets xxx Pelican xxxxxxxx a xxxxxxx rate xx return xx percent xxx Pelican xxxxxxxxx Average xxxxxxxxx assets xxxxxxxx income xxxxxxxxxxx Exercise x Algorithmic xxxxxxxxxxx Economic xxxxx Added xxxx Mullett xxxxxxxxxxxxx earned xxx income xxxx year xx shown xx the xxxxxxxxx income xxxxxxxxx Total xxxxxxx employed xxxxxxx East xxxxxxxxx actual xxxx of xxxxxxx is xxxxxxx Calculate xxx EVA xxx East xxxxxxx Manufacturing xx required xxxxx your xxxxxx to xxxxxxx whole xxxxxx eBookeBookeBook xxxxxxxx - xxxxxxxxxxx The xxxx Products xxxxxxxx of xxxxxxxx Company xxx operating xxxxxx last xxxx of xxx operating xxxxxx of xxxxxxxxxx minimum xxxxxxxxxx rate xx return xx percent xxxxxxxxx the xxxxxxxx income xxx the xxxx Products xxxxxxxx Round xxxx answer xx the xxxxxxx dollar xxxxxxxx income xxxxxxxxxxxxxxx SpreadsheetSpreadsheetSpreadsheet xxxxxxx - xxxxxx on xxxxxxxxxx and xxxxxxxxxx Decisions xxx may xxx the xxxxxxxx spreadsheet xx help xxx complete xxxx activity xxx you xxx not xxxxxxxx to xx so xxx will xxxx the xxxxxxxxxxx by xxxxxxxx on xxx link xx the xxxxxxxxx menu xxxxx Leslie xxxxxxxxx division xxxxxxx of xxxxxxxxx Inc xxx debating xxx merits xx a xxx producta xxxxxxx radio xxxx would xxx out x warning xx the xxxxxx in xxxxx the xxxxxxxx lived xxxx under x severe xxxxxxxxxxxx or xxxxxxx alert xxx budgeted xxxxxx of xxx division xxx with xxxxxxxxx assets xx The xxxxxxxx investment xxxxx add xxxxxx of xxx would xxxxxxx an xxxxxxxxxx investment xx equipment xx The xxxxxxx required xxxxxx on xxxxxxxxxx for xxx company xx percent xx required xxxxx your xxxxxxx to xxx decimal xxxxxx Compute xxx ROI xx the xxxxxxxxx in xxxxxxx a xxx division xx the xxxxx project xx not xxxxxxxxxx b xxx radio xxxxxxx alone x The xxxxxxxx if xxx radio xxxxxxx is xxxxxxxxxx Compute xxx residual xxxxxx of xxx following x The xxxxxxxx if xxx radio xxxxxxx is xxx undertaken x The xxxxx project xxxxx c xxx division xx the xxxxx project xx undertaken xxxxxxxxxx Connection xx you xxxxxxx that xxxxxx will xxxxxx to xxxxxx in xxx new xxxxx Why xx why xxx The xxxxx in xxx box xxxxx will xxx be xxxxxx but xxx be xxxxxxxx and xxxxxxxxxx by xxxx instructor xxx Leslie xxxx decide xx invest xx the xxx radio xxxxx the xxx is xxxxxxxx and xxxx increases xxx overall xxx of xxx project xxxxxxxxxxxxxxx Problem x Return xx Investment xxx Multiple xxxxxxxxxxx Residual xxxxxx Links xx learning xxxxxxxxxx referenced xx this xxxxxxxx can xx accessed xx the xxxxxxxxxx Resources xxxxxxxxx menu xxxxx The xxxxxxx of x division xxxx produces xxxxxx products xxx the xxxxxxxxxx industry xxx just xxxx presented xxx opportunity xx invest xx two xxxxxxxxxxx projects xxx first xx an xxx conditioner xxx the xxxx seats xx vans xxx minivans xxx second xx a xxxxxxxxxxxx Without xxx investments xxx division xxxx have xxxxxxx assets xxx the xxxxxx year xx million xxx expected xxxxxxxxx income xx million xxx outlay xxxxxxxx for xxxx investment xxx the xxxxxxxx operating xxxxxxx are xx follows xxxxxxx the xxx for xxxx investment xxxxxxx Round xx two xxxxxxx places xxx conditioner xxx Turbocharger xxx Compute xxx budgeted xxxxxxxxxx ROI xxx each xx the xxxxxxxxx four xxxxxxxxxxxx Round xx two xxxxxxx places x The xxx conditioner xxxxxxxxxx is xxxx b xxx turbocharger xxxxxxxxxx is xxxx c xxxx investments xxx made x Neither xxxxxxxxxx investment xx made xxxxxxxxxx Connection xxxxxxxx that xxxxxxxxxx managers xxx evaluated xxx rewarded xx the xxxxx of xxx performance xxxxx alternative xx you xxxxx the xxxxxxxxxx manager xxxx choose xxx manager xxxx either xxxxxx turbocharger xxxxxxxxxx or xxxx not xxxx any xxxxxxxxxx investment xxxxx the xxx is xxxx in xxxx these xxxxx Conceptual xxxxxxxxxx Suppose xxxx the xxxxxxx sets x minimum xxxxxxxx rate xx return xxxxx to xxxxxxx Calculate xxx residual xxxxxx for xxxx of xxx following xxxx alternatives x The xxx conditioner xxxxxxxxxx is xxxx b xxx turbocharger xxxxxxxxxx is xxxx c xxxx investments xxx made x Neither xxxxxxxxxx investment xx made xxxxx on xxxxxxxx income xxxxx investment x will xxx manager xxxx The xxxxxxx will xxxx investment xx turbocharger xx that xxxxx him xxx maximum xxxxxxxx Income xxxxxxxxxx Connection xxxxxxx that xxx company xxxx a xxxxxxx required xxxx of xxxxxx equal xx percent xxxxxxxxx the xxxxxxxx income xxx each xx the xxxxxxxxx four xxxxxxxxxxxx a xxx air xxxxxxxxxxx investment xx made x The xxxxxxxxxxxx investment xx made x Both xxxxxxxxxxx are xxxx d xxxxxxx additional xxxxxxxxxx is xxxx Based xx residual xxxxxx which xxxxxxxxxx s xxxx the xxxxxxx make xxx manager xxxx invest xx both xxxxxxxxxxxx and xxx conditioner xxxxx both xx them xxxx positive xxxxxxxx Income xxx increase xxx Residual xxxxxx of xxx entire xxxxxxx Why xxxx your xxxxxx differ xxxx your xxxxxx in xxxxxxxxxxx The xxxxx in xxx box xxxxx will xxx be xxxxxx but xxx be xxxxxxxx and xxxxxxxxxx by xxxx instructor xxx answer xxxxxxx in xxx two xxxxxxxxxx because xxx minimum xxxx of xxxxxx required xx the xxxxxx alternative xx lower xxxx the xxxxx alternative xxxx the xxxxxxxxxx on xxx conditioner xx the xxxxxx alternative xxxxxx a xxxxxxxx Residual xxxxxx as xxxxxxxx to xxx negative xxxxxxxx Income xx the xxxxx alternative xxxx the xxxxxxx Residual xxxxxx of xxx Second xxxxxxxxxxx is xxxx than xxx first xxxxxxxxxxx due xx the xxx minimum xxxxxxxx rate xx return xx capitalMore Articles From Accounting
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