Why is Uber a valuable company?

Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A

earnstyle [38]

Answer:

1. See the calculations under part 1 below.

2. We have:

Division A's Residual Income (loss) = $395,200

Division B's Residual Income (loss) = (105,600)

Division C's Residual Income (loss) = $0

3.a. Only Division B will accept the investment opportunity.

3.b. Divisions A and B will accept the investment opportunity.

Explanation:

Given:

Division A Division B Division C

Sales $15,200,000 $35,200,000 $25,200,000

Average operating assets $3,040,000 $7,040,000 $5,040,000

Net operating income $668,800 $563,200 $655,200

Min. req'd rate of return 9.00% 9.50% 13.00%

Therefore, we have:

1. Compute the margin, turnover, and return on investment (ROI) for each division.

The formulae for calculating these are:

Margin = Net Operating Income / Sales

Turnover = Sales / Average Operating Assets

Return on Investment = Margin * Turnover

Therefore, we have:

Division A:

Margin = $668,800 / $15,200,000 = 0.0440, or 4.40%

Turnover = $15,200,000 / $3,040,000 = 5 times

Return on Investment = 4.40% * 5 = 22%

Division B:

Margin = $563,200 / $35,200,000 = 0.0160, or 1.60%

Turnover = $35,200,000 / $7,040,000 = 5 times

Return on Investment = 1.60% * 5 = 8%

Division C:

Margin = $655,200 / $25,200,000 = 0.0260, or 2.60%

Turnover = $25,200,000 / $5,040,000 = 5 times

Return on Investment = 2.60% * 5 = 13%

2. Compute the residual income (loss) for each division.

The formula for calculating this is:

Residual Income (loss) = Net Operating Income - Minimum Required Return * Average Operating Assets

Therefore, we have:

Division A's Residual Income (loss) = $668,800 - (9.00% * $3,040,000) = $395,200

Division B's Residual Income (loss) = $563,200 - (9.50% * $7,040,000) = (105,600.00)

Division C's Residual Income (loss) = $655,200 - (13.00% * $5,040,000) = $0

3-a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity?

The decision criterion is for a division to accept the investment opportunity if its Return on Investment (ROI) is lower than 10%. Otherwise, reject.

Based on the Return on Investment results in part 1 above, only Division B will accept the investment opportunity.

3-b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity?

The decision criterion is for a division to accept the investment opportunity if its minimum required rate of return is lower than 10%. Otherwise, reject.

Based on the information on minimum required rate of returns given in the question, Divisions A and B will accept the investment opportunity.

5 0

3 years ago

A store offers two payment plans. under the installment plan, you pay 25% down and 25% of the purchase price in each of the next

Ann [662]

Answer

a-1 . The Present Value of the installment plan is $94.38.

We calculate the PV of $25 for each of the three following years with the following formula:

$PV_{Annuity} = Constant Payment * PVIFA_{0.04,3}$

where

PVIFA = Present Value interest factor of an annuity of $1 at 4% for 3 years.

$PVIFA_{0.04,3} = 2.77509103$

We can ascertain this in excel by using the syntax : =pv(0.04,3,-1).

In this syntax, 0.04 is the interest rate, 3 is number of periods and since the annuity is $1 we write 1. We need to put in -1 because otherwise, we'll get the answer as a negative number. This is because excel treats any Present Values as outflows, and records them as negative.

Substituting the values above in the preceding equation we get,

$PV_{Annuity} = 25 * 2.77509103$

$PV_{Annuity} = 69.3772758$

In order to find the Present Value of the installment plan, we need to add the down payment of $25. So,

$PV_{instalment} = $25 + 69.3772758$

PV of instalment = $94.38

a-2. We get a 6% discount when we pay in full, so the purchase price of the product becomes:

$Purchase price = 100 - (100*0.06)$

$Purchase price = $94 (100 - 6)$

Since the purchase price of the pay in full plan is lesser than that of the installment plan, the pay in full plan is a better option.

b-1. The Present Value of the installment plan is $90.75.

Since the first instalment falls due only after one year, we calculate the PV of $25 each of four years with the following formula:

$PV_{Annuity} = Constant Payment * PVIFA_{0.04,4}$

where

PVIFA = Present Value interest factor of an annuity of $1 at 4% for 4 years.

$PVIFA_{0.04,4} = 3.62989522$

We can ascertain this in excel by using the syntax : =pv(0.04,4,-1).

Substituting the values above in the preceding equation we get,

$PV_{Annuity} = 25 * 3.62989522$

$PV_{Annuity} = 90.7473806$

b-2. In this case, the PV of the pay in full plan remains at $94 while that of the instalment plan falls to $90.75. Since the PV of the Instalment plan is lower, we'll choose the instalment plan.

6 0

3 years ago

Oswego Clay Pipe Company provides services of $45,400 to Southeast Water District #45 on April 12 of the current year with terms

777dan777 [17]

Answer:

C. Accounts Receivable 45,400 Sales Revenue 45,400

Explanation:

Trade Receivable $45,400 (debit)

Revenue $45,400 (credit)

Recognise an Asset - Trade Receivable and Revenue

8 0

3 years ago

Read 2 more answers

The firm's policy is to have finished goods inventory on hand at the end of the month that is equal to 70 percent of the next mo

Dahasolnce [82]

Answer:

$\left[\begin{array}{ccccc}& &September&October&November\\&$sales&6000&6800&5600\\&$Desired ending&4760&3920&4270\\&$Total Needs&10760&10720&9870\\&$beginning&4200&4760&3920\\&$Production Requirement&6560&5960&5950\\\end{array}\right]$

MISSING INFORMATION ATTACHED

Explanation:

$\left[\begin{array}{ccccc}& &September&October&November\\&$sales&6000&6800&5600\\&$Desired ending&4760&3920&4270\\&$Total Needs&10760&10720&9870\\&$beginning&4200&4760&3920\\&$Production Requirement&6560&5960&5950\\\end{array}\right]$

The sales forecasted plus the desired ending inventory is the complete needs the sales department expect to be fullfill

Then, as the company has a beginning invneotry each period a portion of this needs is already fullfil thus, the difference are the production requirements.

7 0

4 years ago

Which of the five competitive forces is influencing a passenger train line, when a new automobile manufacturer causes a reductio

FromTheMoon [43]

Hi thank you for using brainly.com

The answer to this question is “availability of substitutes“. The reduction in the number of people riding trains is due to the fact that a new substitute, automobile, is available in the market. 
Hope that helps!

4 0

3 years ago