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Kersten Brown, the CEO of Pleasanton studios, is having a tough week-all three of her top management level a. Evaluate this year's performance results for the three divisions. Your financial analysis should include a employees have dropped in with problems. One executive is making questionable decisions, another is segmented income statement for Pleasanton studios, as well as the current annual ROI, residual income threatening to quit, and the third is reporting losses (again). Kersten is hoping to find simple answers to all her and EVA for the three divisions. difficulties. She is asking you (her accountant) for some advice on how to proceed. b. Evaluate Entertainment's decision not to invest in the new animation studio (i.e., was the decision Pleasanton Studios owns and operates three decentralized divisions: Entertainment, 5treaming, and Parks. appropriate and in the best in Pleasanton Studios has a decentralized organizational structure, where each division is run as an investment Evaluate the validity of Reyna Imanah's complaint regarding her evaluated performance. Explain why it. center. Division managers meet with the CEO at least once annually to review their performance, where each is (or is not valid), and what further information would be necessary. division manager's performance is measured by their division's return on investment (ROI). The division d. Provide a cost of capital. The Entertainment division manager, John Freeman, was the first to knock on Kersten's door this morning. Table 1: Pleasanton Studios current year data Entertainment, Pleasanton Studios' first endeavor, produces movies for the big screen. Entertainment has been in operation since 1965 . Last month, John had mentioned a proposal to build a new animation studio. The build would cost $4,910,000 with an estimated life of 20 years and no salvage value and would allow 51,210,000 in revenues each year, but would increase annual production costs by 5574,000 . John had dropped in to let Kersten know he had decided not to move forward with the animation studio. This surprised Kersten her quick mental calculation indicated that the studio would have a payback period of B years, much shorter than the expected life of the studio. Not entirely sure that her quick assessment was valid, Kersten needed to check with her accountant on the matter. Next to Kersten's door was the manager of Streaming, which produces short-form (30 minute to one hour) Table 1: Seamented income Statement episodes in addition to streaming the movies developed by Entertainment. Customers then buy subscriptions to the service. Run by division manager Reyna Joapab, Streaming was introduced in 2016 and has increase subacriptions by 20% every year since. Reyna's complaint was that, based on the current bonus payout subscription rates at streaming, and says that her division is being punished for having opened so recently (her division's facilities are much more recent than those in Entertainment). She currently has an employment offer from another company at the same base pay rate, and stated that she will accept this offer unless she feels her performance is being appropriately acknowledged and compensated. Kersten needs to look at the relative performance across divisions to determine how to proceed with Reyna. Pleasanton Parks is a theme park based on the movies from Entertainment and the series from streaming. For many years, it was a popular year-round destination, with characters, rides, and a hotel. This park has lost popularity in recent years, and has been 'in the red' for the past two years. If the park is not profitable this year, you will need to decide whether to permanently close that division. Included in the 'Fixed cogs' for Parks is an annual $1,650,000 mortgage payment on the land and buildings for the park, which would still need to be paid (as a corporate level cost) if the park is closed and that segment is removed from the financial expand into the area. If you decided to close Parks, you are fairly certain that you could lease the hotel facilities to Marriott for 5650,000 annually. A partial report of this year's financial results for Pleasanton Studios can be found in Table 1 below. The 'selling and admin costs' listed in Table 1 are directly incurred by each division, and are determined at the beginning of each year (that is, they do not change with increased/decreased production). In addition to the divisional information above, there are 52,000,000 in corporate costs that are currently allocated evenly between the three divisions. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Parks division is closed, the decreased employee base would reduce allocated corporate costs by $500,000. Pleasanton Studios has a cost of capital of 12 percent (and Kersten uses the cost of capital as their required rate of return] and are subject to 32% income taxes. Before she can make any decisions, Kersten needs to evaluate this year's performance results. She sats off to see you, the company's accountant, for answers. Kersten Brown, the CEO of Pleasanton studios, is having a tough week-all three of her top management level a. Evaluate this year's performance results for the three divisions. Your financial analysis should include a employees have dropped in with problems. One executive is making questionable decisions, another is segmented income statement for Pleasanton studios, as well as the current annual ROI, residual income threatening to quit, and the third is reporting losses (again). Kersten is hoping to find simple answers to all her and EVA for the three divisions. difficulties. She is asking you (her accountant) for some advice on how to proceed. b. Evaluate Entertainment's decision not to invest in the new animation studio (i.e., was the decision Pleasanton Studios owns and operates three decentralized divisions: Entertainment, 5treaming, and Parks. appropriate and in the best in Pleasanton Studios has a decentralized organizational structure, where each division is run as an investment Evaluate the validity of Reyna Imanah's complaint regarding her evaluated performance. Explain why it. center. Division managers meet with the CEO at least once annually to review their performance, where each is (or is not valid), and what further information would be necessary. division manager's performance is measured by their division's return on investment (ROI). The division d. Provide a cost of capital. The Entertainment division manager, John Freeman, was the first to knock on Kersten's door this morning. Table 1: Pleasanton Studios current year data Entertainment, Pleasanton Studios' first endeavor, produces movies for the big screen. Entertainment has been in operation since 1965 . Last month, John had mentioned a proposal to build a new animation studio. The build would cost $4,910,000 with an estimated life of 20 years and no salvage value and would allow 51,210,000 in revenues each year, but would increase annual production costs by 5574,000 . John had dropped in to let Kersten know he had decided not to move forward with the animation studio. This surprised Kersten her quick mental calculation indicated that the studio would have a payback period of B years, much shorter than the expected life of the studio. Not entirely sure that her quick assessment was valid, Kersten needed to check with her accountant on the matter. Next to Kersten's door was the manager of Streaming, which produces short-form (30 minute to one hour) Table 1: Seamented income Statement episodes in addition to streaming the movies developed by Entertainment. Customers then buy subscriptions to the service. Run by division manager Reyna Joapab, Streaming was introduced in 2016 and has increase subacriptions by 20% every year since. Reyna's complaint was that, based on the current bonus payout subscription rates at streaming, and says that her division is being punished for having opened so recently (her division's facilities are much more recent than those in Entertainment). She currently has an employment offer from another company at the same base pay rate, and stated that she will accept this offer unless she feels her performance is being appropriately acknowledged and compensated. Kersten needs to look at the relative performance across divisions to determine how to proceed with Reyna. Pleasanton Parks is a theme park based on the movies from Entertainment and the series from streaming. For many years, it was a popular year-round destination, with characters, rides, and a hotel. This park has lost popularity in recent years, and has been 'in the red' for the past two years. If the park is not profitable this year, you will need to decide whether to permanently close that division. Included in the 'Fixed cogs' for Parks is an annual $1,650,000 mortgage payment on the land and buildings for the park, which would still need to be paid (as a corporate level cost) if the park is closed and that segment is removed from the financial expand into the area. If you decided to close Parks, you are fairly certain that you could lease the hotel facilities to Marriott for 5650,000 annually. A partial report of this year's financial results for Pleasanton Studios can be found in Table 1 below. The 'selling and admin costs' listed in Table 1 are directly incurred by each division, and are determined at the beginning of each year (that is, they do not change with increased/decreased production). In addition to the divisional information above, there are 52,000,000 in corporate costs that are currently allocated evenly between the three divisions. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Parks division is closed, the decreased employee base would reduce allocated corporate costs by $500,000. Pleasanton Studios has a cost of capital of 12 percent (and Kersten uses the cost of capital as their required rate of return] and are subject to 32% income taxes. Before she can make any decisions, Kersten needs to evaluate this year's performance results. She sats off to see you, the company's accountant, for answers