Answer the following independent questions. Support your answers with clearly identified formulas and computation.
a. A company`s available data:
Sales $2,500,000
Net operating income 1,500,000
Return on investment 25%
Cost of capital 15%
Calculate the company`s total assets.
b. Using the data from question VI (a), calculate the residual income.
c. An automobile parts `company has three divisions:
Engines Brakes Windshields
Sales $ 8,000,000 $ 9,000,000 $ 10,000,000
Contribution margin 2,000,000 2,500,000 3,500,000
Operating income 1,500,000 1,500,000 2,750,000
Investment base 12,000,000 14,000,000 16,000,000
The company`s desired rate of return is 15%.
a. Compute each divisions` ROI
b. Compute each divisions` residual income
c. Rank each division by both ROI and residual income
d. Explain which division has the best performance in the year and why
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