P 4. Ornamental Iron is a division of Iron Foundry Company. Its balance sheets and income statements for the past two years appear below.

Required 1. Compute the division’s profit margin, asset turnover, and return on investment for this year and last year. Beginning total assets for last year were $157,900. Round to two decimal places.
2. The desired return on investment for the division has been set at 12 percent.
Compute Ornamental Iron’s residual income for this year and last year.
3. The cost of capital for the division is 8 percent. Compute the division’s economic value added for this year and last year.
4. Before drawing conclusions about this division’s performance, what additional information would you want?

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Cash Iron Foundry Company Ornamental Iron Division Balance Sheet December 31 Accounts receivable Inventory Other current assets Plant assets Total assets Assets This Last Year Year $ 5,000 $ 3,000 10,000 8,000 30,000 32,000 600 600 128,300 120,300 $173,900 $163,900 Liabilities and Stockholders' Equity Current liabilities $ 13,900 $ 10,000 Long-term liabilities 90,000 93,900 Stockholders' equity 70,000 60,000 Total liabilities and stockholders' equity $173,900 $163,900