RI, EVA. Toys for All is a small company that manufactures old-fashioned, high-quality toys in two divisions: wood and metal. Results reported for the last year are as follows:

REQUIRED I. Calculate the residual income for each division using operating income before tax and investment equal to total assets minus current liabilities. The required rate of return on investments is 12%.
2. ‘The company has two sources of funds: long-term debt with a market value of $18,000 at an interest rate of 10% and equity capital with a market value of $12,000 at a cost of equity of 15%. Toys for All’s income tax rate is 40%. ‘Toys for All applies the same weightedaverage cost of capital to both divisions, since each division faces similar risks. Calculate the economic value added (EVA®) for each division.
3. Using your answers to requirements 1 and 2, what would you conclude about the performance of each division? Explain briefly.LO1

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Wood Toys Division Metal Toys Division Total Assets Current Liabilities Operating Income before tax $80,000 $ 8,000 $12,000 $130,000 $ 15,000 $ 24,000