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?
14–84
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
Cost of sales
Gross Margin
430,500
1,900,000
1,400,000
Allocated
overhead
228,000
210,000
14–87
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
Uno
Dos
Revenues
$600,000
$1,900,000
Cost of sales
Gross Margin
215,250
950,000
Allocated corporate
overhead
36,000
114,000
Other general &
administration
Operating income
100,000
286,000
Taxes
Net income
200,200
14–88
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%
Ein
Drei
Cost of sales
Allocated
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%
Cost of sales
3,769,500
9,400,000
Taxes
Net income
$1,105,000
14–91
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:
14–92
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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14–95
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.