To finance customer purchases, MarineCo recently started a customer financing unit. MarineCos income statement and balance sheet are provided in Exhibit 12.8. Separate MarineCos income statement and balance sheet into the two segments: manufacturing and the customer financing unit. Assume equity in the financing subsidiary is the difference between finance receivables and debt related to those receivables. What is the return on invested capital for manufacturing segment? What is the return on equity for the customer financing subsidiary?

Above, we computed ROE based on an equity calculation equal to the difference between finance receivables and debt related those receivables. Why might this ROE measurement lead to a result that is too high?

Income Statement	Today	Year 1
Revenues	800	840
Operating costs	(640)	672
Depreciation	(40)	(42)
Operating profits	120	126
Interest	(16)	(16)
Earnings before taxes	104	110
Taxes	(26)	(27.5)
Net Income	78	82.5

Reorganized balance sheet	Today	Year 1
Operating working capital	70.1	73.6
Property and equipment	438.4	460.3
Invested capital	508.5	533.9
Debt	200	210
Shareholders equity	308.5	323.9
Invested capital	508.5	533.9