Canvas Paints is a national paint manufacturer and retailer. Assume that management has specified a 21% target rate of return.
x nu i Data Table - ini iel The company is segmented into five divisions: Paint Stores (branded retail location), Consumer (paint sold through stores such as Sears, Home Depot, and Lowe's), Automotive (sales to auto manufacturers), International, and Administration. The following is selected hypothetical divisional information for the company's two largest divisions: Paint Stores and Consumer (in thousands of dollars). o th Total Assets Sales Operating Income $ 3,920,000 $ 490,000 Paint Stores $ 1,400,000 $ 1,600,000 Consumer ..... 1,200,000 $ 180,000 0 un Print Done Requirements Round all calculations to two decimal places. 1. Calculate each division's ROI. 2. Calculate each division's sales margin. Interpret your results. 3. Calculate each division's capital turnover. Interpret your results. 4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results. 5. Calculate each division's RI. Interpret your results and offer recommendations for any division with negative RI. 6. Total asset data were provided in this problem. If you were to gather this information from an annual report, how would you measure total assets? Describe your measurement choices and some of the pros and cons of those choices. 7. Describe some of the factors that management considers when setting its minimum target rate of return. 8. Explain why some firms prefer to use Rl rather than ROI for performance measurement. 9. Explain why budget versus actual performance reports are insufficient for evaluating the performance of investment centers. Print Done Canvas Paints is a national paint manufacturer and retailer. (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements. Requirement 1. Calculate each division's ROI. First enter the formula, then calculate the ROI for each division. (Enter the ROI as a percent rounded to the nearest hundredth of a percentage, X.XX%.) 11 ROI Paint Stores % Consumer 11 % Canvas Paints is a national paint manufacturer and retailer. (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements. Requirement 1. Calculate each division's ROI. First enter the formula, then calculate the ROI for each division. (Enter the ROI as a percent rounded to the nearest hundredth of a percentage, X.XX%.) ROI . % % Paint Stores Operating income Consumer Sales Requirement 2 Total assets Total current liabilities ales margin. Interpret your results. Canvas Paints is a national paint manufacturer and retailer. E (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements. Requirement 2. Calculate each division's sales margin. Interpret your results. Enter the formula, then calculate the sales margin for each division. (Enter the sales margin as a percent rounded to the nearest hundredth of a percentage, X.XX%.) Sales margin Paint Stores % Consumer II Operating income Sales % Interpret your results. Total assets Total current liabilities Interpret your results. The Division is more profitable on each dollar of sales. Requ each division's capital turnover. Interpret your results. Consumer First n calculate the capital turnover for each division. (Round to two decimal places.) Paint Stores Canvas Paints is a national paint manufacturer and retailer. (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements. Requirement 3. Calculate each division's capital turnover. Interpret your results. First enter the formula, then calculate the capital turnover for each division. (Round to two decimal places.) Capital turnover Paint Stores times Consumer . II Operating income Sales times The Division more efficient in ge Total assets S. Total current liabilities Canvas Paints is a national paint manufacturer and retailer. (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements. Requirement 3. Calculate each division's capital turnover. Interpret your results. First enter the formula, then calculate the capital turnover for each division. (Round to two decimal places.) Capital turnover Paint Stores times Consumer . times The Division is more efficient in generating sales with its assets. Consumer Choo nter any number in the input fields and then continue to the next question. Paint Stores Canvas Paints is a national paint manufacturer and retailer. (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements. Requirement 4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results. First enter the expanded ROI formula, then calculate the ROI for each division. (Enter the ROI as a percent rounded to the nearest hundredth of a percentage, X.XX%.) v ROI X II % 11 % Paint Stores Effective tax rate Consumer Sales margin The Consumer Division's pro WACC es is than the Paint Stores Division's profitability. However, the Paint Store Division's efficiency is significantly Canvas Paints is a national paint manufacturer and retailer. (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements. Requirement 4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results. First enter the expanded ROI formula, then calculate the ROI for each division. (Enter the ROI as a percent rounded to the nearest hundredth of a percentage, X.XX%.) = ROI Paint Stores % % Consumer % Capital turnover % Operating income The Consumer Division's profitability on each dollar of sales Sales tores Division's profitability. However, the Paint Store Division's efficiency is significantly Total assets than the Consumer Division's efficiency. These res Division's ROI to be the Consumer Division's ROI. Total current liabilities Choose from any list or enter any number in the input fieus an MPM CUMUTUPU me next question Canvas Paints is a national paint manufacturer and retailer. E (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements. First enter the formula, then calculate the RI for each division. (Enter the amount in thousands. Use parentheses or a minus sign for negative residual incomes.) RI Paint Stores % Consumer Capital turnover Current liabilities % itions for any division with negative RI. Interpret your res Operating income Sales management's target rate of return. The should work on improving its . Improving this may Total assets holn the division roma Canvas Paints is a national paint manufacturer and retailer. (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements. Requirement 5. Calculate each division's RI. Interpret your results and offer recommendations for any division with negative RI. First enter the formula, then calculate the RI for each division. (Enter the amount in thousands. Use parentheses or a minus sign for negative residual incomes.) RI x Paint Stores Effective tax rate Consumer Target rate of return Interpret your results and offer recommendations for any division with negative F WACC Canvas Paints is a national paint manufacturer and retailer. (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements. Requirement 7. Describe some of the factors that management considers when setting its minimum target rate of return. 0 urn. After-tax operating income Assets less current liabilities amount Competitors rate of return General economic conditions Interest rates on the company debt Investors expectations Minimum rate of return required by investors Risk level of the division's business Return being earned by other divisions considers when setting its minimum target rate of return
