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101.
The Jones Company purchased assets costing $200,000 which will be depreciated over 5-
years using straight-line depreciation and no salvage value. The Jones also purchased
land and other assets, which are not depreciable at a cost of $200,000. It is estimated that
in 5-years, the value of these assets will be unchanged. Assume that annual cash profits
are $80,000 and, for return on investment (ROI) calculations, the company uses end-of-
year asset values.
What is the ROI for each year using net book value?
Year 1
Year 2
Year 3
Year 4
A.
11.1%
12.5%
14.3%
16.7%
B.
10.0%
10.0%
10.0%
10.0%
C.
10.0%
8.9%
7.3%
6.5%
D.
11.1%
11.5%
12.5%
12.3%
102.
The Jones Company purchased assets costing $200,000 which will be depreciated over 5-
years using straight-line depreciation and no salvage value. The Jones also purchased
land and other assets, which are not depreciable at a cost of $200,000. It is estimated that
in 5-years, the value of these assets will be unchanged. Assume that annual cash profits
are $80,000 and, for return on investment (ROI) calculations, the company uses end-of-
year asset values.
What is the ROI for each year using gross book value?
Year 1
Year 2
Year 3
Year 4
A.
10.0%
9.5%
8.0%
7.9%
B.
10.0%
10.0%
10.0%
10.0%
C.
12.5%
11.0%
12.0%
15.0%
D.
10.0%
12.5%
14.0%
17.0%
103.
The Jones Company purchased assets costing $200,000 which will be depreciated over 5-
years using straight-line depreciation and no salvage value. The Jones also purchased
land and other assets, which are not depreciable at a cost of $200,000. It is estimated that
in 5-years, the value of these assets will be unchanged. Assume that annual cash profits
are $80,000 and, for return on investment (ROI) calculations, the company uses end-of-
year asset values.
If sales each year average $840,000, what will be the asset turnover using gross book
value?
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Essay Questions
14-85
104.
Seaside Enterprises has the following data for its three divisions for the year:
SB
TH
GM
Revenues
$1,200,000
$3,800,000
$2,800,000
Cost of sales
769,500
1,900,000
1,400,000
Allocated
corporate
overhead
72,000
228,000
210,000
Other general
&
administration
158,500
1,100,000
1,100,000
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105.
La Mesa Foods has the following data for its two divisions for the year:
Uno
Dos
Revenues
$600,000
$1,900,000
Cost of sales
384,750
950,000
Allocated corporate
overhead
36,000
114,000
Other general &
administration
79,250
550,000
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106.
Nue Wines has the following data for its three divisions for the year:
Ein
Zwei
Drei
Revenues
$12,000,000
$38,000,000
$28,000,000
Cost of sales
7,695,000
19,000,000
14,000,000
Allocated
corporate
overhead
720,000
2,280,000
2,100,000
Other general
&
administration
1,585,000
11,000,000
11,000,000
Return on
Investment
15%
12%
9%
14-90
107.
La Mesa Stores has the following data for its two divisions for the year:
Uno
Dos
Revenues
$6,000,000
$18,000,000
Cost of sales
3,769,500
9,400,000
Allocated corporate
overhead
400,000
1,200,000
Other general &
administration
772,000
5,700,000
Return on Investment
14%
12%
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108.
The Calculating Fashion Company has two operating divisions: North and South. The
following information was collected from its financial statements.
North
South
Operating income
$15,375
$9,160
Sales
90,100
128,445
Average operating assets
47,620
37,690
109.
The Calculating Fashion Company has two operating divisions: North and South. The
following information was collected from its financial statements.
North
South
Operating income
$15,375
$9,160
Sales
90,100
128,445
Average operating assets
47,620
37,690
Required:
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110.
You are the manager of an operating division of a manufacturing company. Your division
has $4,500,000 in assets, and your budgeted income statement for the current year
follows:
Revenues
$8,000,000
Cash costs:
Variable
1,000,000
Fixed
3,750,000
Depreciation
1,375,000
Your company uses a performance evaluation and bonus plan, which is based on return
on investment (ROI) computed with end-of-year gross asset balances.
In October, you discover that you can purchase a new machine for $3,250,000, which will
enable you to expand the output of your division and save costs. The machine would have
a salvage value of $250,000 and would be depreciated over 3-years using the straight-line
method. It will increase output by 10% while reducing cash fixed costs by 5%. If you accept
the machine, it will be installed in late December, but no depreciation will be taken on the
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111.
The ArtMart Company has three divisions: X Division, Y Division, and Z Division. Operating
results for the three divisions for last year were as follows:
Div X
Div Y
Div Z
Residual income
$98,400
$27,200
$2,000
Net operating
income
188,600
115,600
66,000
Average operating
assets
820,000
680,000
400,000
Sales
1,640,000
1,445,000
1,040,000
Profit margin
11.5%
8.0%
5.0%
112.
The following information is available about the status and operations for Division A of
Boxwood Company, which has a minimum required ROI of 20%.
Answer
each
item
independently
of
the
others.
Division A
Divisional investment
$200,000
Divisional profit
$70,000
Divisional sales
$400,000
113.
The following information is available about the status and operations for Division B of
Boxwood Company, which has a minimum required ROI of 20%.
Answer
each
item
independently
of
the
others.
Division B
Divisional investment
$1,500,000
Divisional profit
$550,000
Divisional sales
$3,600,000
114.
115.
