1 Dynamite limited is a private company where a financial performance evaluation is to take place. The management accounting department advised the management to use Return on Investment to carry out the exercise. Table below provides the data for 2020 that could be used for the analysis Data items Cash S 14,500 Account receivable 8,560 Prepaid Expense 7500 Inventory 8,800 Plant 220,000 Property 280,000 Equipment 95,000 Accumulated Depreciation- Equipment 15,000 Unearned Revenue 45,000 Revenue 325,000 Cost of Revenue 138,500 Operating expenses: Salary expenses 25,800 Supplies Expense Utilities Depreciation Expense Tax Interest Expenses 28,400 22,000 11,300 28% 16,200 $530,000 Operating Assets for year 2019 Show all your calculations REQUIRED 1. Calculate the operating profit (EBIT) for 2020 2. Calculate net income of the current year. 3. Calculate the Average Operating Assets 4. Calculate the ROI using the information on the table 5. Find ROI using the two component method [DuPont Analysis] 6. Explain why the two component method of calculating ROI is more useful. 7. What component has contributed the most in 2020 to the ROI of this company Question 2 Stanford company is a private and its management accountant department is planning to analyze its financial performance. They collected some information on the financial statement and decided to calculate the residual income of the company to get a better picture of the profit being generated by the company. Information for analysis is provided in the table below: Current Assets: Cash A/C Receivable Inventory Current Liabilities Long Term Liabilities Equity Equipment Property Plant $ 16,500 12,500 30,000 34,200 124,300 212,000 120,000 110.000 ? Interest Revenue 35000 Tax rate 30% COGS 79,500 Operating Expenses 34,200 Accumulated Depreciation - Plant 28,500 Last Year Operating Assets 285,000 Sales 116,200 Interest on debt 7.5% Government Bond rate Market index @Jan 2018 Market index @Dec 31, 2018 Beta 4% 27680 28960 1.7 Hint: Long term assets are always sated at Net Book Value Important All workings should be shown. REQUIRED 1. Calculate Total Assets of the company using the accounting formula [A=L+E] 2. Calculate gross original cost of the plant and calculate the net book value of plant. 3. Calculate operating assets and the average OA. 4. Calculate and EBIT, interest expense, tax 5. Calculate return on equity (e) Calculate Residual Income. 6. 7. How doe the residual income differ from Accounting income [EBIT]? Question 3 Lumber corporation is a private company and the managers want to know how much of economic value has been added during the current year. So they decided to use EVA to measure the financial performance The company provided the management accountant department with the following financial data found in the table below: S000 Current liabilities Current Assets 65.300 30% Long term liabilities [Bond Payable] 185.200 Equity 150,000 Research & development 25,000 Training expenses 13.000 Tax rate 25% Net income 45.500 Sales 76200 Cogs 33,500 Interest paid on debt 17,000 Risk free rate 6% 6.5% Risk premium Assume that current liabilities are not interest bearing obligation Cost of equity is government bond rate+ risk premium REQUIRED 1. Calculate tax, interest expense and EBIT (operating income) 2. Calculate the EBIT after tax 3. Calculate the total assets 4. Calculate working capital employed (WCE). 5. What is the WACC of the company? 6. Calculate the economic value added [EVA] 7. What will happen if a company has negative EVA for a while