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\fExercise 12-33 Segmented Income Statement; TV Cable Company (LO 5) Countywide Cable Services, Inc. is organized with three segments: Metro, Suburban, and Outlying. Data for these segments for the year just ended follow. Metro Suburban Outlying Service revenue ..................... $1,000,000 $800,000 $400,000 Variable expenses ................... 200,000 150,000 100,000 Controllable fixed expenses .... 400,000 320,000 150,000 Fixed expenses controllable by others .. 230,000 200,000 90,000 In addition to the expenses listed above, the company has $95,000 of common fixed expenses. Income-tax expense for the year is $145,000. Required: 1. Prepare a segmented income statement for Countywide Cable Services, Inc. Use the contribution format Exercise 13-27 Calculate Weighted-Average Cost of Capital for EVA (LO 2) Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two sources of long The cost to Golden Gate of issuing debt is the after-tax cost of the interest payments on the debt, taking into account the fact t tax deductible. The cost of Golden Gate's equity capital is the investment opportunity rate of Golden Gate's investors, that is, th investments of similar risk to that of investing in Golden Gate Construction Associates. The interest rate on Golden Gate's $60 m percent, and the company's tax rate is 40 percent. The cost of Golden Gate's equity capital is 15 percent. Moreover, the market Golden Gate's equity is $90 million. Required: Calculate Golden Gate Construction Associates' weighted-average cost of capital Exercise 13-28 Economic Value Added (EVA); Continuation of Preceding Exercise (LO 2) Refer to the data in the preceding exercise for Golden Gate Construction Associates. The company has two divisions: the re and the construction division. The divisions' total assets, current liabilities, and before-tax operating income for the most re follows: Division Total Assets Real estate ............................ $100,000,000 Construction .........................60,000,000 Current Liabilities $6,000,000 4,000,000 Before Tax Operating Income $20,000,000 18,000,000 Required: Calculate the economic value added (EVA) for each of Golden Gate Construction Associates' divisions. (You wil weighted-average cost of capital, which was computed in the preceding exercise.) Exercise 13-29 ROI; Residual Income (LO 1, 2) Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to b assembled on customers' lots. Wyalusing expanded into the precut housing market when it acquired Fairmont Company, o suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into packages, and shipp customers' lots for assembly. Wyalusing designated the Fairmont Division as an investment center. Wyalusing uses return o investment (ROI) as a performance measure with investment defined as average productive assets. Management bonuses in part on ROI. All investments are expected to earn a minimum return of 15 percent before income taxes. Fairmont's ROI h ranged from 19.3 to 22.1 percent since it was acquired. Fairmont had an investment opportunity in 20x1 that had an estim of 18 percent. Fairmont's management decided against the investment because it believed the investment would decrease the division's overall ROI. The 20x1 inco statement for Fairmont Division follows. The division's productive assets were $12,600,000 at the end of 20x1, a 5 percent over the balance at the beginning of the year. FAIRMONT DIVISION Income Statement For the Year Ended December 31, 20x1 (in thousands) Sales revenue ....................................................................................................$24,000 Cost of goods sold ..............................................................................................15,800 Gross margin ................................................................................................. $ 8,200 Operating expenses: Administrative .......................................................................$2,140 Selling .................................................................................3,600 5,740 Income from operations before income taxes ............................................. $ 2,460 Required: 1. Calculate the following performance measures for 20x1 for the Fairmont Division. a. Return on investment (ROI). b. Residual income. 2. Would the management of Fairmont Division have been more likely to accept the investment opportunity it had in 20x residual income were used as a performance measure instead of ROI? Explain your