Financial Cont... >>> Segment margins Following is the information on Paragon Company's three product lines: Required (a) Construct a segment margin statement for Paragon Company. (b) Explain why the segment margins reported for an organization unit must be interpreted carefully. Case B Return on investment and residual income The Newburg Flyers operate a major sports franchise from a building in downtown Newburg. The building was built in 1940 at a cost of $5,000,000 and is fully depreciated so that it is shown on the company's balance sheet at a nominal value of $1. The land on which the building was built in 1940 was purchased in 1935 for $10,000 and is valued at this amount for balance sheet purposes. The franchise, which is the company's only other major investment, cost $100,000 in 1940. Following GAAP at the time of the purchase, the franchise cost has now been fully amortized. The current assessed value of the building is $200,000. The assessed value of the land, which is located in a prime urban area, is $20,000,000 and reflects the net value of the property if the current building is demolished and replaced with an office and shopping complex. The current value of the franchise, assuming that the league owners would approve a franchise sale, is $50,000,000. Required (a) Ignoring taxes in this calculation, if the team earns an income of approximately $3,000,000 per year, what is the return on investment using net book value and historical cost as the measures of investment? (b) Ignoring taxes in this calculation and assuming that the organization's cost of capital is 15%, if the team earns approximately $3,000,000 per year, what is the residual income using net bee value here cost as the 9:14 Assignment & Answer-Motivating... > Case-A Evaluating a compensation plan Beau Monde, Inc., a manufacturer and distributor of health and beauty products, made the following disclosure about its compensation program: Our compensation philosophy is based on two simple principles: (1) We pay for performance and (2) management cannot benefit unless our shareholders benefit first. Executive compensation at Beau Monde consists of three elements: base salary, bonus, and stock awards. Frankly, we see base salaries and the underlying value of restricted stock as what you have to pay to get people in the door-fixed costs, if you will. Incentives, in the form of annual cash bonuses and gains tied to increases in the price of our stock, are the performance drivers of our pay equation-the variable costs. The first element is base salary. Our philosophy is to peg salary levels at median competitive levels. In other words, we pay salaries that are sufficient to attract and retain the level of talent we require. The second element of our executive compensation is our bonus plan. This plan is based on management by objectives. Each year, the compensation committee approves objectives and performance measures for the corporation, our divisions, and our key individual managers. At year end, bonuses are paid on the basis of measurable performance against these objectives. The third element of our executive compensation program is stock incentives, namely, restricted stocki and stock options. Our restricted stock program is very straightforward. Stock option grants are made each year at market value. Our options vest over time periods of two to six years to encourage long-term equity holding by management. In 1998, we instituted an innovative stock incentive plan called the Stock Option Exchange Program. Under this program, management can purchase stock options by exchanging other forms of compensation, such as the annual bonus or restricted stock, for the options. The price charged for the options is determined by an independent investment banker using pricing mechanics." Our compensation committee is made up entirely of independent outside directors. We have no interlocking directorates, in which I serve on the compensation committee of one of my director's companies and he or she serves on mine. The compensation committee uses outside advisers chosen independently to ensure that recommendations are fair to all shareholders. Required Evaluate this incentive compensation plan