Question 6

Marys Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the current year were as follows:

	Sport	Terrain	City
Revenues	$1,700,000	$800,000	$6,000,000
Current assets	230,000	40,000	410,000
Capital assets	870,000	660,000	1,590,000
Current liabilities	100,000	100,000	500,000
Net operating income	238,000	48,000	608,000
After-tax income	188,300	36,300	484,300
Weighted average cost of capital	10%	10%	10%

Required:

For each division compute (to two decimal) the: (3 marks each)

1. Return on sales in %

2. Return on investment (to two decimal) based on total assets employed in %

3. Economic value added

4. Residual income based on net operating income