The balance sheet for NuBone Corporation's New Products Division showed invested assets of
The balance sheet for NuBone Corporation’s New Products Division showed invested assets of $200,000 at the beginning of the year and $300,000 at the end of the year. During the year, the division’s operating income was $12,500 on sales of $500,000.
1.Compute the division’s residual income if the desired ROI is 6 percent.
2.Compute the following performance measures for the division: (a) profit margin, (b) asset turnover, and (c) return on investment. (Round profit margin percentage to one decimal place.)
3.Recompute the division’s ROI under each of the following independent assumptions. a. Sales increase from $500,000 to $600,000, causing operating income to rise from $12,500 to $30,000. b. Invested assets at the beginning of the year are reduced from $200,000 to $100,000. (Round percentage to two decimal places.) c. Operating expenses are reduced, causing operating income to rise from $12,500 to $20,000.
4.Compute the company’s EVA if total corporate assets are $500,000, current liabili- ties are $80,000, after-tax operating income is $50,000, and the cost of capital is 8 percent.