Helena Corporation operates three investment centers. The following financial statements apply to the investment center named...

Transcribed Image Text:

Helena Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division. BOWMAN DIVISION Income Statement For the Year Ended December 31, Year 2 Sales revenue Cost of goods sold Gross margin Operating expenses Selling expenses Depreciation expense Operating income Nonoperating item Loss on sale of land Net income $ 138,000 78,000 60,000 (6,000) (8,000) 46,000 (16,000) $ 30,000 BOWMAN DIVISION Balance Sheet As of December 31, Year 2 Assets Cash Accounts receivable Merchandise inventory Equipment less accumulated depreciation Nonoperating assets. Total assets Liabilities Accounts payable Notes payable Stockholders' equity Common stock Retained earnings Total liabilities and stockholders' equity Required c. Calculate the ROI for Bowman. $ 18,898 42,266 37,578 90,258 9,000 $ 198,000 $ 9,637 72,000 80,000 36,363 $ 198,000 d. Helena has a desired ROI of 10 percent. Headquarters has $96,000 of funds to assign to its investment centers. The manager of the Bowman Division has an opportunity to invest the funds at an ROI of 12 percent. The other two divisions have investment opportunities that yield only 11 percent. Calculate the new ROI for Bowman division, if the investment opportunity is adopted by Bowman. e. Based on the original data, calculate the original residual income. Also, calculate the new residual income based on information provided in Requirement d. Helena Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division. BOWMAN DIVISION Income Statement For the Year Ended December 31, Year 2 Sales revenue Cost of goods sold Gross margin Operating expenses Selling expenses Depreciation expense Operating income Nonoperating item Loss on sale of land Net income $ 138,000 78,000 60,000 (6,000) (8,000) 46,000 (16,000) $ 30,000 BOWMAN DIVISION Balance Sheet As of December 31, Year 2 Assets Cash Accounts receivable Merchandise inventory Equipment less accumulated depreciation Nonoperating assets. Total assets Liabilities Accounts payable Notes payable Stockholders' equity Common stock Retained earnings Total liabilities and stockholders' equity Required c. Calculate the ROI for Bowman. $ 18,898 42,266 37,578 90,258 9,000 $ 198,000 $ 9,637 72,000 80,000 36,363 $ 198,000 d. Helena has a desired ROI of 10 percent. Headquarters has $96,000 of funds to assign to its investment centers. The manager of the Bowman Division has an opportunity to invest the funds at an ROI of 12 percent. The other two divisions have investment opportunities that yield only 11 percent. Calculate the new ROI for Bowman division, if the investment opportunity is adopted by Bowman. e. Based on the original data, calculate the original residual income. Also, calculate the new residual income based on information provided in Requirement d.