Question 6

Time: 20 minutes

Total: 12 marks

Mary's 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