The following information is available for Division A of Drexel Corp. for this financial year:
| Sales | $2,000,000 |
| Income | $400,000 |
| Assets | $500,000 |
| Liabilities | $100,000 |
| Target Return on Capital | 10% |
| Weighted Average Cost of Capital | 8% |
| Tax Rate | 30% |
What was the Divison's Residual Income (RI) and Economic Value Added (EVA) for the year?
| | RI: $350,000; EVA: $240,000 |
| | RI: $360,000; EVA: $240,000 |
| | RI: $360,000; EVA: $248,000 |
| | RI: $350,000; EVA: $248,000 |
What was the Divison's Return on Investment (ROI) for the year?
| Rax Co. has two divisions with the following information for the year: | |
| | |
| Common Unallocated Fixed Costs | $200,000 |
| Direct and Allocated Fixed Costs of Division A | 50,000 |
| Direct and Allocated Fixed Costs of Division B | 100,000 |
| Sales Revenue of Division A | 300,000 |
| Sales Revenue of Division B | 400,000 |
| Variables Costs of Division A | 75,000 |
| Variables Costs of Division B | 120,000 |
| | |
| What is Division B's segment income? | |
Alpha Division provides product both internally to Beta Division and on the open market to external customers for a price of 25 dollars each. To make the product, Alpha incurs 7 dollars of variable cost per unit and 10 dollars of fixed costs per unit.
What is the minimum transfer price Alpha would accept for an internal transfer of the product to Beta if the Alpha is operating (1) way under capacity, or (2) at full capacity?
Drexel Co. is evaluating an investment opportunity to expand its facilities. The opportunity has the following information:
| Cost | $500,000 |
| Increase in Liabilities | $100,000 |
| Anticipated Return | $55,000 |
| Current ROI (before opportunity) | 10.5% |
| Target Return on Capital | 10% |
| Weighted Average Cost of Capital | 12% |
| Tax Rate | 30% |
Will Drexel most likely accept or reject this opportunity if it's evaluating the opportunity based on: Return on Investment (ROI), Residual Income (RI), and Economic Value Added (EVA)?
| | ROI: Accept; RI: Reject; EVA: Reject |
| | ROI: Reject; RI: Accept; EVA: Accept |
| | ROI: Reject; RI: Accept; EVA: Reject |
| | ROI: Accept; RI: Accept; EVA: Reject |
