5. To finance customer purchases, ATVCo, a manufacturer and seller of allterrain vehicles, recently started a customer financing unit. ATVCo’s income statement and balance sheet for the past year are provided in Exhibit 17.11.

Separate ATVCo’s income statement and balance sheet into the two segments:

manufacturing and the customer financing unit. Assume that 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 the manufacturing segment? What is the return on equity for the customer financing subsidiary? (For simplicity, assume that the tax rate for both manufacturing and financing is 30 percent. Also, note that the firm had general obligation debt during the year but no longer does at year-end.)

EXHIBIT 17.11 ATVCo: Income Statement and Balance Sheet $ million Income statement Balance sheet Sales of machinery 1,500 Operating assets 2,200 Revenues of financial products 400 Financial receivables 4,000 Total revenues 1,900 Total assets 6,200 Cost of goods sold (1,000)
Interest expense of financial products (350) Operating liabilities 400 Total operating costs (1,350) General obligation debt 0 Debt related to customer financing 3,600 Operating profit 550 Stockholders' equity 2,200 Interest expense, general obligation (80) Total liabilities and equity 6,200 Income taxes (141)
Net income 329