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NeX [460]
3 years ago
7

Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost of capital of 25 percent. Selected financial inf

ormation (in thousands of dollars) for the first year of business follows.
East West
Sales revenue $1,400 $5,400
Income 270 450
Investment (beginning of year) 1,900 2,400
Current liabilities (beginning of year) 220 220
R&D expenditures (note a) 500 400


A R&D is assumed to benefit two periods. All R&D is spent at the beginning of the year.

Required:
Evaluate the performance of the two divisions assuming BMI uses residual income.
Business
1 answer:
ss7ja [257]3 years ago
3 0

Answer:

Both divisions have negative residual income,but the performance of West Division is preferred

Explanation:

Residual income is the word used in describing the remnant of profit after cost of doing business(cost of capital) has been deducted from net income.

The formula is stated thus:

residual income=net income-(cost of capital*investment)

For East Division,residual income is computed as follows:

Net income is $270,000

Investment is $1,900,000

cost of capital is 25%

residual income=$270,000-($1,900,000*25%)=-$205,000

For West Division,residual income is computed as follows:

Net income is $450,000

Investment is $2,400,000

cost of capital is 25%

residual income=$450,000-($2,400,000*25%)=-$150000

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<u>Return on Investment</u> is the compensation companies receive for purchasing capital assets.

Capital assets are significant pieces of property like houses, automobiles, rental properties, stocks, bonds, and even antiques or works of art. A capital asset for businesses is an asset with a useful life of more than a year that is not intended for sale during normal company operations.

Your investments in the business are the time and money you devote to strengthening your company. The profit you receive from your investments is the return. The ratio of net profit to the entire cost of the investment is how ROI is often defined.

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2 years ago
SWOT analysis is an objective process. True False
Alex787 [66]

"SWOT analysis is an objective process" is TRUE.

<u>Answer:</u> Option A

<u>Explanation:</u>

A management tool used to comprehend the strengths, weaknesses, opportunities, and threats included in any programme or corporation is understood as a "SWOT analysis". This includes defining the company or project objective and recognizing with horizontal pairings of internal (strengths and weakness) and external (opportunities and threats) variables that are beneficial or adverse to achieving that objective. While vertical pairings of helpful (strengths and opportunities) and harmful (weaknesses and threats). Final analytical results will assist the institution to evaluate whether the goals, products, services, projects or goals are a tactical fit.

5 0
3 years ago
A ___ is a worker whos classified by the common understanding of the profession. an example would be a food server.
jeyben [28]

Employee classifications identify employees who are exempt from requirements set by the Fair Labor Standards Act (FLSA) and determine the benefits they receive. You may have heard the terms “full-time” and “part-time” before, but there are even more employee classifications that involve jobs that offer varying compensation, duration and work hours.

When applying for jobs, paying attention to employment classification can guide you to the career that provides you the work-life balance and compensation you need. In this article, we explore a list of different employee classifications to help you decide which might be right for you

There are a number of classifications into which an employee might fall. These classifications include: Full-time, Part-time, Temporary, Intern and Seasonal. Employees are usually classified based on the hours worked, the expected duration of the job, and the job duties..

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6 0
2 years ago
Liu Company has sales of $48,500,000, and the break-even point in sales dollars is $31,040,000. Determine the company's margin o
slava [35]

Answer:

Margin of safety ratio= 0.36= 36%

Explanation:

Giving the following information:

Liu Company has sales of $48,500,000, and the break-even point in sales dollars is $31,040,000.

To calculate the margin of safety as a percentage, we need to use the following formula:

Margin of safety ratio= (current sales level - break-even point)/current sales level

Margin of safety ratio=  (48,500,000 - 31,040,000) / 48,500,000

Margin of safety ratio= 0.36= 36%

5 0
4 years ago
Stoneheart Group is expected to pay a dividend of $3.27 next year. The company's dividend growth rate is expected to be 3.4 perc
shepuryov [24]

Answer:

The stock price is $37.16

Explanation:

Dividend Valuation method is used to value the stock price of a company based on the dividend paid, its growth rate and rate of return. The price is calculated by calculating present value of future dividend payment.

Formula to calculate the value of stock

Price = Dividend / ( Rate or return - growth rate )

Price = $3.27 / ( 12.2% - 3.4% )

Price = $3.27 / 12.2% - 3.4%

Price = $3.27 / 8.8%

Price = $37.16

7 0
3 years ago
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