Question
14-34. Comparing Business Units Using ROI Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost-of-capital of 15%. Selected financial information
14-34. Comparing Business Units Using ROI
Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost-of-capital of 15%. Selected financial information (in thousands of dollars) for the first year of business follows:
East West
Sales Revenue $1,000 $5,000
Income 200 390
Investment (beginning of year) 2,000 3,000
Current Liabilities (beginning of year) 200 200
R&D expenditures (note a) 500 400
R&D assumed to benefit two periods. All R&D is spent at the beginning of the year.
Required
Evaluate the performance of the two divisions assuming BMI uses return on investment (ROI).
14-35. Comparing Business Units Using Residual Income
Refer to the data in Exercise 14-34.
Required
Evaluate the performance of the two divisions assuming BMI uses residual income.
14-36. Comparing Business Units Using Economic Value Added (EVA)
Refer to the data in Exercise 14-34.
Required
Evaluate the performance of the two divisions assuming BMI uses economic value added.
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