Question 6

Time: 20 minutes

Total: 12 marks

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

$2,400,000

$997,000

$6,660,000

Current assets

292,000

92,000

622,000

Capital assets

870,000

660,000

1,590,000

Current liabilities

100,000

100,000

500,000

Net operating income

230,000

40,000

600,000

After-tax income

184,000

32,000

480,000

Weighted average cost of capital

10%

10%

10%

Required:

For each division compute (to two decimal) the:

11. Return on sales in %

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

13. Economic value added

14. Residual income based on net operating income

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 $2,400,000 $997.000 $6,660,000 Current assets 292.000 92,000 622.000 Capital assets 870,000 660,000 1.590,000 Current liabilities 100.000 100,000 500.000 Net operating income 230,000 40,000 600,000 After-tax income 184.000 32,000 480,000 Weighted average cost of capital 10% 10% 10% Required: For each division compute (to two decimal) the: 11. Return on sales in % 12. Return on investment (to two decimal) based on total assets employed in % 13. Economic value added 14. Residual income based on net operating income