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QUESTION SEVEN: PERFORMANCE MANAGEMENT Pedrow's is a retailer that specialises in office supplies. It is a division of a large retail company. The following data
QUESTION SEVEN: PERFORMANCE MANAGEMENT Pedrow's is a retailer that specialises in office supplies. It is a division of a large retail company. The following data relates to the most recent year of Pedrow's operations: $ Profit 6,000,000 70,000,000 Sales Revenue Average Invested Capital 40,000,000 Required: (a) Calculate Pedrow's return on sales, investment turnover and return on investment. (3 marks) (b) Assuming that Pedrow's has a minimum required rate of return of 12 per cent, calculate (1 mark) Pedrow's residual income. (c) Papyrus, a newly set up division of the retail company, in its first year of operation has total assets $600,000, current liabilities $90,000, after tax operating income of $50,000 and its weighted average cost of capital is 9 per cent. Calculate the economic value added (EVA) for Papyrus, if Papyrus defines capital employed as total assets less current liabil ities. (2 marks) (d) Discuss the four (4) major limitations to traditional financial performance measures. (4 marks)
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