Two different business units of Skysong Corporation were engaged in a friendly competition to see which...

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Two different business units of Skysong Corporation were engaged in a friendly competition to see which location would make the best use of a $49,000 investment. The business units had complete autonomy to spend the money on whatever investment would best serve their locations, but they were motivated to keep ROI trends moving in a positive direction. The following financial statements reflect each business unit's profitability and financial position at the end of the prior calendar year. Skysong Corporation uses a 7% minimum required rate of return. It is financed 70% with debt that carries an average 6% interest rate, and it averages an 8% cost of equity. Sales COGS Gross margin Selling expenses Administrative expenses Operating income Income tax expense Operating income after-tax Assets Cash Accounts receivable Inventory Fixed assets, net Long-term investments Total assets Downtown $350,000 221,000 129,000 36,000 60,000 $33,000 9,900 $23,100 12,000 20,000 217,000 40,000 Uptown $452,000 $318,000 291,000 $29,000 $34,000 161,000 40,000 76,000 $45,000 13,500 $31,500 19,000 22,000 225,000 58,000 $358,000 Liabilities and Equity Accounts payable Notes payable, long-term Mortgage payable Retained earnings Total liabilities and equity 1. $19,000 $41,000 2. 45,000 197,000 57,000 $318,000 30,000 230,000 Each location is considering one of the following two investments in long-term assets, where the asset would be depreciated using the straight-line method over its useful life. 57,000 $358,000 $49,000 for an updated and upgraded pizza oven that will allow for faster cooking times and less energy usage, with an estimated improvement in operating income of $15,000 each year (before depreciation) over its 7-year life. $49,000 to update the atmosphere and seating capacity of the restaurant, with an anticipated operating income increase of $12,000 per year (before depreciation) over a 10-year useful life, when it will be updated again. (a) Calculate each location's ROI for last year, using total operating assets as the denominator. Here, all assets except long-term investments are considered operating assets. (Round answers to 4 decimal places, e.g. 0.1526.) Divisional ROI last year Downtown Uptown Two different business units of Skysong Corporation were engaged in a friendly competition to see which location would make the best use of a $49,000 investment. The business units had complete autonomy to spend the money on whatever investment would best serve their locations, but they were motivated to keep ROI trends moving in a positive direction. The following financial statements reflect each business unit's profitability and financial position at the end of the prior calendar year. Skysong Corporation uses a 7% minimum required rate of return. It is financed 70% with debt that carries an average 6% interest rate, and it averages an 8% cost of equity. Sales COGS Gross margin Selling expenses Administrative expenses Operating income Income tax expense Operating income after-tax Assets Cash Accounts receivable Inventory Fixed assets, net Long-term investments Total assets Downtown $350,000 221,000 129,000 36,000 60,000 $33,000 9,900 $23,100 12,000 20,000 217,000 40,000 Uptown $452,000 $318,000 291,000 $29,000 $34,000 161,000 40,000 76,000 $45,000 13,500 $31,500 19,000 22,000 225,000 58,000 $358,000 Liabilities and Equity Accounts payable Notes payable, long-term Mortgage payable Retained earnings Total liabilities and equity 1. $19,000 $41,000 2. 45,000 197,000 57,000 $318,000 30,000 230,000 Each location is considering one of the following two investments in long-term assets, where the asset would be depreciated using the straight-line method over its useful life. 57,000 $358,000 $49,000 for an updated and upgraded pizza oven that will allow for faster cooking times and less energy usage, with an estimated improvement in operating income of $15,000 each year (before depreciation) over its 7-year life. $49,000 to update the atmosphere and seating capacity of the restaurant, with an anticipated operating income increase of $12,000 per year (before depreciation) over a 10-year useful life, when it will be updated again. (a) Calculate each location's ROI for last year, using total operating assets as the denominator. Here, all assets except long-term investments are considered operating assets. (Round answers to 4 decimal places, e.g. 0.1526.) Divisional ROI last year Downtown Uptown

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