Question
Telum Ltd manufactures electronic devices and competes on the basis of quality and leading-edge designs. The company has $1,750,000 invested in assets in its Mobile
Telum Ltd manufactures electronic devices and competes on the basis of quality and leading-edge designs. The company has $1,750,000 invested in assets in its Mobile Phone Division. After-tax operating profit from sales of mobile phones this year is $325,000. The Tablet Division has $6,000,000 invested in assets and an after-tax operating profit this year of $1,050,000. Income for the Mobile Phone Division has grown steadily over the past few years. The weighted-average cost of capital for Telum Ltd is 9% and the previous periods after-tax return on investment for each division was 13%. The CEO of Telum Ltd has told the manager of each division that the division that performs best this year will get a bonus.
- The CEO of Telum LTd has recently heard of another measure similar to residual income called EVA. The CEO has the accountant calculate EVA - adjusted incomes of the Mobile Phone and Tablet Divisions, and finds that the adjusted after-tax operating profits are $700,000 and $1,300,000, respectively. Also, the Mobile Phone Division has $525,000 of current liabilities, whereas the Tablet Division has only $105,000 of current liabilities. Using the above information,
- Calculate EVA for each division
(Note: Use net assets as capital employed)
(4 marks)
- Briefly discuss which divisional manager will get the bonus.
(2 marks)
- What non-financial measures could Telum Ltd use to evaluate divisional performances? Suggest any three non-financial measures. (3 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started