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For this assignment, you will be calculating return on investment, margin, turnover, residual income, and economic value added ratios for two divisions of the same
For this assignment, you will be calculating return on investment, margin, turnover, residual income, and economic value added ratios for two divisions of the same company.
Directions:
A company has two divisions with the following information:
Sales: | 2,000,000 |
Operating Income: | 400,000 |
Assets Jan. 1: | 4,000,000 |
Assets Dec. 31: | 4,500,000 |
Sales: | 1,000,000 |
Operating Income: | 300,000 |
Assets Jan. 1: | 2,000,000 |
Assets Dec. 31: | 2,200,000 |
The Minimum required rate of return for the company for all of its divisions is 30% and its cost of capital is 15%. The company has an income tax rate of 40%. Calculate the following ratios for both divisions:
- Return on Investment
- Margin
- Turnover
- Residual income
- Economic Value Added
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