Question
Envision Company has a target return on capital of 12 percent. The following financial information is available for October ($ thousands): Software Division Consulting Division
Envision Company has a target return on capital of 12 percent. The following financial information is available for October ($ thousands):
| Software Division | Consulting Division | Venture Capital Division | ||||
|---|---|---|---|---|---|---|
| (Value Base) | (Value Base) | (Value Base) | ||||
| Book | Current | Book | Current | Book | Current | |
| Sales | $100,000 | $100,000 | $200,000 | $200,000 | $800,000 | $800,000 |
| Income | 12,250 | 11,700 | 16,400 | 20,020 | 56,730 | 51,920 |
| Assets | 70,000 | 90,000 | 100,000 | 110,000 | 610,000 | 590,000 |
| Liabilities | 10,000 | 10,000 | 14,000 | 14,000 | 40,000 | 40,000 |
Required
a. Compute the return on investment using both book and current values for each division.
Round answers to three decimal places.
| Book Value | Current Value | |
|---|---|---|
| Software | ||
| Consulting | ||
| Venture Capital |
b. Compute the residual income for both book and current values for each division.
Use negative signs with answers, when appropriate.
| Book Value | Current Value | |
|---|---|---|
| Software | ||
| Consulting | ||
| Venture Capital |
c. Compute the economic value added income for both book and current values for each division if the tax rate is 30 percent and the weighted average cost of capital is 10 percent.
Use negative signs with answers, when appropriate.
| Book Value | Current Value | |
|---|---|---|
| Software | ||
| Consulting | ||
| Venture Capital |
Step by Step Solution
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Step: 1
a Computing the return on investment ROI using both book and current values for each division ROI is ...
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Financial Accounting Tools for Business Decision Making
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
5th Edition
9781118560952, 1118560957, 978-0470239803
