The company is segmented into five divisions: Paint Stores (branded retail location), Consumer (paint sold through stores such as Home Depot and Lowe's), Automotive (sales to auto manufacturers), International, and Administration. The following is selected hypothetical divisional information for the company's two largest divisions: Paint Stores and Consumer (in thousands of dollars). Total Assets Paint Stores Sales Operating Income $ 3,920,000 $ 490,000 $ 1,250,000 $ 175,000 $ 1,400,000 - Consumer $ 1,562,500 1. Calculate each division's ROI. 2. Carulate each division's sales margin. Interpret your results. 3. Calculate each division's capital 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. 6. Total asset data were provided in this problem. If you were to gather this information from an annual report, how would you measure total assets? Describe your measurement choices and some of the pros and cons of those choices. 7. Describe some of the factors that management considers when setting its minimum target rate of return. 8. Explain why some firms prefer to use Rl rather than ROI for performance measurement 9. Explain why budget versus actual performance reports are insufficient for evaluating the performance of investment centers. Requirements Round all calculations to two decimal places. 1. Calculate each division's ROI. olilateb dipantalon more interrotour Porte Big Kid Paints is a national paint manufacturer and retailer. (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements! Requirement 1. Calculate each division's ROI. First enter the formula, then calculate the ROI for each division (Enter the ROI as a percent rounded to the nearest hundredth of a percentage, X.XX%.) = ROI Paint Stores % Consumer II 1 % Requirement 2. Calculate each division's sales margin. Interpret your results. Enter the formula, then calculate the sales margin for each division. (Enter the sales margin as a percent rounded to the nearest hundredth of a percentage, X.XX%.) Sales margin = = Paint Stores % Consumer 11 % Interpret your results. The Division is more profitable on each dollar of sales. Requirement 3. Calculate each division's capital turnover. Interpret your results. First enter the formula, then calculate the capital turnover for each division. (Round to two decimal places.) Interpret your results. The Division is more profitable on each dollar of sales. Requirement 3. Calculate each division's capital turnover. Interpret your results. First enter the formula, then calculate the capital turnover for each division. (Round to two decimal places.) Capital turnover Paint Stores times Consumer times 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, then calculate the ROI for each division. (Enter the ROI as a percent rounded to the nearest hundredth of a percentage, X.XX%.) ROI Paint Stores % % Consumer % X % The Consumer Division's profitability on each dollar of sales is However, the Paint Store Division's efficiency is sianificantly than the Paint Stores Division's profitability. than the Consumer Division's efficiency. These Big Kid Paints is a national paint manufacturer and retailer. B (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements * HII IVIUIVIU PUHy vir UVIVU U SOUL TO III WIWITIIVIU MIGHTS. However, the Paint Store Division's efficiency is significantly than the Consumer Division's efficiency. These results cause the Paint Stores Division's ROI to be the Consumer Division's ROI. Requirement 5. Calculate each division's RI. Interpret your results and offer recommendations for any division with negative RI. First enter the formula, then calculate the RI for each division. (Enter the amount in thousands. Use parentheses or a minus sign for negative residual incomes.) RI Paint Stores x %) = Consumer %) = Interpret your results and offer recommendations for any division with negative RI. meeting management's target rate of return. The should work Improving this may help the division achieve positive residual income. on improving its Requirement 6. Total asset data were provided in this problem. If you were to gather this information from an annual report , how would you measure total assets? Describe your measurement choices and some of the pros and cons of those choices. Most companies use the year asset balance since the income used in the ROI calculation is earned over the Big Kid Paints is a national paint manufacturer and retailer. Click the icon to view additional information) Assume that management has specified a 21% target rate of return. Read the requirements, those choices. Most companies use the asset balance since the income used in the ROI calculation is earned over the year. Management must also decide whether they wish to use the gross book value of assets or the net book value of assets. The book value is often used because it is easily pulled from the balance sheet. However, Rol using that value will artificially rise over time due to Requirement 7. Describe some of the factors that management considers when setting its minimum target rate of retum Requirement 8. Explain why some firms prefer to use Rl rather than ROI for performance measurement. RI does a better job of Requirement 9. Explain why budget versus actual performance reports are insufficient for evaluating the performance of investment rantere Big Kid Paints is a national paint manufacturer and retailer. Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements The book value is often used because it is easily pulled from the balance sheet. However, ROI using that value will artificially rise over time due to Requirement 7. Describe some of the factors that management considers when setting its minimum target rate of return Requirement 8. Explain why some firms prefer to use Rl rather than ROI for performance measurement. RI does a better job of Requirement 9. Explain why budget versus actual performance reports are insufficient for evaluating the performance of investment centers. Budget Investment centers are responsible for versus actual performance reports are insufficient because they do not measure equirement 8. Explain why some firms prefer to use Rl rather than ROI for performance measurer I does a better job of uatin Requirement 9. Explai f investment centers. 3 focusing on stockholders' and creditors rate of return hvestment centers are ersus actual performa getting management to make sure their division is profitable goal congruence increasing the return on investment Requirement 7. Describe some of the factors that management return After-tax operating income Assets less current liabilities amount Competitors rate of return than ROI for perform General economic conditions Interest rates on the company debt reports are insuffici Investors expectations do not measure Minimum rate of return required by investors Risk level of the division's business Return being earned by other divisions Consumer -( Interpret your results and offer recommendations for any division with negative F of return. on improving its vision ach acquisitions of property Requirement 6. Total asset data w report, how would you measure tota those choices. were to go jent choice cash balance depreciation used in the Most companies use the year. notes receivable Management must also decide whe k value of prepaid expenses he balance The book value is often us will artificially rise over time due to Requirement 7. Describe some of the factors that management considers when return. Paint Stores Consumer ( Interpret your results and offer recommendations for any division with neg meeting management's target rate of Improving this may help the divisi on improving its sche Requirement 6. report, how woul those choices. n this problem. If you we scribe your measuremen capital turnover rate ice since the income use Most companies year. customer service Management mu ROI n to use the gross book va The boo is easily pulled from the t sales will artificially rise total assets Requirement 7. return. at management considers Paint Consumer Interpret your results and offer recommendations for any divi meeting management's ta oving this may F ded in this proble Describe your Both divisions are Neither division is 1 palance since th Only the Consumer Division is wish to use the Only the Paint Stores Division is se it is easily pu Irget rate of return. X %= X % ) = for any division with negative RI. gement's target rate of return. The should work this may help the division achieve n this problem. If you were to gather scribe your measurement choices ar Consumer Division Paint Store Division nce since the income used in the RO n to use the gross book value of assets or the net book value of assets. hundredth of a percentage, X.XX%.) Paint Stores Consumer Operating income Requirement 2 argin. Interp Sales for each divi Enter the formu nearest hundred Total assets Paint Stores Total current liabilities Consumer Interpret your results. The Division is more profitable on each dollar o Requirement 3. Calculate each division's capital turnover. Inte First enter the formula, then calculate the capital turnover for ea