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AP 12 - 18
How would the divisions be ranked (from best to worst performance) if the evaluation were based on net income
Net income Rank
Division A $102,000 3 (Worst)
Division B $1,040,000 1 (Best)
Division C $750,000 2
How would the divisions be ranked (from best to worst performance) if the evaluation were based on ROI
Division A 20.00% =Net income/total assets 1
Division B 9.81% 3
Division C 12.42% 2
How would the divisions be ranked (from best to worst performance) if the evaluation were based on residual income?
Residual Income Rank
Division A $53,550 =income-(total assets*required rate of return) 1 (Best)
Division B -$232,000 3 (Worst)
Division C -$198,280 2
P 12 - 6
Compute ROI for both years
ROI for 2011 7.7778% =net income/total assets
ROI for 2012 8.7719%
Break ROI down into profit margin and investment turnover.
Profit margin 5.8333% =net income/sales 5.1429%
Investment turnover 1.3333 =sales/total assets 1.7057
AP 12 - 7
Calculate the ROI for both subsidiaries.
Hazardous Waste 13.02% =net income/total assets
Residential waste 8.81%
Calculate EVA (Economic value added) for both subsidiaries. Note that since no adjustments for (accounting distortions" are being made, EVA is equivalent to residual income.
Hazardous Waste $3,000
Residential waste -$3,614,000
Which subsidiary has added the most to shareholder value in the last year?
Based on the limited information, which subsidiary is the best candidate for expansion?
Hazardous waste© BrainMass Inc. brainmass.com December 24, 2021, 9:37 pm ad1c9bdddf>