Micanopy Company makes replicas of Indian artifacts. The balance sheet for the Arrowhead Division showed that the

Question:

Micanopy Company makes replicas of Indian artifacts. The balance sheet for the Arrowhead Division showed that the company had invested assets of $300,000 at the beginning of the year and $500,000 at the end of the year. During the year, Arrowhead Division’s operating income was $80,000 on sales of $1,200,000.

Required

1. Compute Arrowhead Division’s residual income if the desired ROI is 20 percent.

2. Compute the following performance measures for the division:

(a) Profit margin,

(b) Asset turnover, and

3. Compute Micanopy Company’s economic value added if total corporate assets are $6,000,000, current liabilities are $800,000, after-tax operating income is $750,000, and the cost of capital is 12 percent.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...