It is the end of the third quarter, and Sarah is evaluating the performance of two key divisions in the company. Both divisions had$54,000 cash available for investment in the fourth quarter, so Sarah is now analyzing each division before a potential investment. Shehas gathered the following condensed income statements and selected information from the balance sheet for each division. Thecompany's minimum required rate of return is 10%, while its weighted average cost of capital is 9%. Its effective tax rate is 25%SalesCOGSGross marginOperating expensesOperating incomeOperating assetsTotal assetsCurrent liabilitiesEast$860,000400,000$460,000424,000$36,000$800,000$1,200,000$160,000West$1,300,000670,000$630,000594,000$36,000$500,000$870,000$48,000 Calculate the current ROI, RI, and EVA for each division through the third quarter. For ROI purposes, operating assets areconsidered investments. (Enter ROI as a decimal, not as a percentage. Round ROI to 4 decimal places, e.g. 0.1526. Enter negativeamounts with either a-sign e.g.-15,000 or in parenthesis eg. (15,000).)WestROIRI$EVA $East0.0450(44,000)(66,600)$GFourth quarter operating income needed $0.0720(14,000)(46,980)How much would each division need to generate in new operating income in the fourth quarter to reach the company's desiredROI of 13% at year-end, assuming each division uses its available $54,000 to purchase a new investment? Assume it is a $54,000nondepreciable asset but still included in operating assets.East75020$West

ROI is expressed as a percentage and is calculated by dividing an investment's net profit (or loss)…

ROI RI $ EVA $ East 0.0450 (44,000) (66,600) West Fourth quarter operating income needed 0.0720 East (14,000) (46,980) How much would each division need to generate in new operating income in the fourth quarter to reach the company's desired ROI of 13% at year-end, assuming each division uses its available $54,000 to purchase a new investment? Assume it is a $54,000 nondepreciable asset but still included in operating assets. C 75020 West

ROI RI $ EVA $ East 0.0450 (44,000) (66,600) West Fourth quarter operating income needed 0.0720 East (14,000) (46,980) How much would each division need to generate in new operating income in the fourth quarter to reach the company's desired ROI of 13% at year-end, assuming each division uses its available $54,000 to purchase a new investment? Assume it is a $54,000 nondepreciable asset but still included in operating assets. C 75020 West

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 4P

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