REQUIREMENTS
DATA TABLE
QUESTIONS
Requirements Round all calculations to two decimal places. 1. Calculate each division's ROI. 2. Calculate each division's profit margin. Interpret your results. 3. Calculate each division's asset turnover. Interpret your results. 4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results. 5. Calculate each division's RI. Interpret your results, and offer recommendations for any division with negative RI. 0 Information Operating Current Total Assets Sales Income Liabilities Paint stores ... $ 4,000,000 $ Consumer 1,140,000 440,000 $ 1,250,000 $ 148,200 1,425,000 355,000 620,000 Sunshine Paints is a national paint manufacturer and retailer. The company is segmented into five divisions: Paint Stores (branded retail locations), Consumer (paint sold through stores such as Canadian Tire, Home Hardware, and Lowe's), Automotive (sales to auto manufacturers), International, and Administration. The following is selected divisional information for the company's two largest divisions: Paint Stores and Consumer (in thousands of dollars). (Click the icon to view the information.) Assume that management has specified a 21% target rate of return. Further assume that the company's weighted average cost of capital is 17% and its effective tax rate is 28%. Requirements Requirement 1. Calculate each division's ROI. First, enter the formula, and then calculate the ROI for each division. (Round your answer to two decimal places.) / ROI Paint stores / % Consumer 1 Requirement 2. Calculate each division's profit margin. Interpret your results. Enter the formula, and then calculate the profit margin for each division. (Enter the sales margin as a percent rounded to two decimal places.) Profit margin % Paint stores % Consumer Interpret your results. The Division is more profitable on each dollar of sales. Requirement 3. Calculate each division's asset turnover. Interpret your results. First, enter the formula, and then calculate the asset turnover for each division. (Round your answer to two decimal places.) Asset tumover Paint stores times Consumer times Interpret your results. The Division is more efficient in generating sales with its assets. Requirement 4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results. First, enter the expanded ROI formula, and then calculate the ROI for each division. (Round your answer to two decimal places.) ROI Paint stores X % Consumer % X Interpret your results. significantly than the Consumer Division's efficiency. These results cause the Paint Stores Division's ROI to be the The Consumer Division's profitability on each dollar of sales is than the Paint Stores Division's profitability. However, the Paint Store Division's efficiency Consumer Division's ROI. Requirement: Calculate each division's RI. Interpret your results, and offer recommendations for any division with negative RI. First, enter the formula, and then calculate the RI for each division. (Use parentheses or a minus sign for negative residual incomes.) RI Paint stores Consumer %) = Interpret your results, and offer recommendations for any division with negative RI. meeting management's target rate of return. The should work on improving its Improving this may help the division achieve positive residual income
