Yoda pic specialises in the manufacture and distribution of action figures of popular movie characters. It...

  

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Yoda pic specialises in the manufacture and distribution of action figures of popular movie characters. It operates under two divisions, Luke (manufacturing) and Leia (distribution). The financial performance of the two divisions for the most recent accounting period is given below: Leia Division E'000 Luke Division £'000 Income 3500 4800 Operating Costs Operating Profit 2150 3520 1350 1280 Divisional fixed overheads* Apportioned group costs Net Profit 520 350 360 620 470 310 * Both divisions have full control over their fixed overheads, which include straight line depreciation on assets owned by the division. The net assets for Luke, Leia and Yoda for the current period are given below and include the net book value (NBV) of non-current assets. For Luke Division, NBV is almost completely written down to zero. Net Assets Luke Leia Yoda 850,000 1,800,000 450,000 Yoda is considering an investment in a new production and distribution approach that will have the following implications: Profit |Investment Luke Leia 100,000 150,000 625,000 400,000 Yoda manages the performance of the two divisions by expecting a return on investment (Rol) of at least 16% of net assets and a positive residual income (RI) after charging an 11% capital charge for the use of net assets. b) Calculate the new RoI and RI figures for Luke, Leia and Yoda should the new investment go ahead, comment on the results explaining whether the managers of each division, and the head office of Yoda plc, would accept or reject the investment and why. (10 marks) c) Explain the way in which depreciation can affect the results of both RoI and RI and the impact it may have on the decision making within Yoda plc, and within Luke Division in particular. (5 marks) Yoda pic specialises in the manufacture and distribution of action figures of popular movie characters. It operates under two divisions, Luke (manufacturing) and Leia (distribution). The financial performance of the two divisions for the most recent accounting period is given below: Leia Division E'000 Luke Division £'000 Income 3500 4800 Operating Costs Operating Profit 2150 3520 1350 1280 Divisional fixed overheads* Apportioned group costs Net Profit 520 350 360 620 470 310 * Both divisions have full control over their fixed overheads, which include straight line depreciation on assets owned by the division. The net assets for Luke, Leia and Yoda for the current period are given below and include the net book value (NBV) of non-current assets. For Luke Division, NBV is almost completely written down to zero. Net Assets Luke Leia Yoda 850,000 1,800,000 450,000 Yoda is considering an investment in a new production and distribution approach that will have the following implications: Profit |Investment Luke Leia 100,000 150,000 625,000 400,000 Yoda manages the performance of the two divisions by expecting a return on investment (Rol) of at least 16% of net assets and a positive residual income (RI) after charging an 11% capital charge for the use of net assets. b) Calculate the new RoI and RI figures for Luke, Leia and Yoda should the new investment go ahead, comment on the results explaining whether the managers of each division, and the head office of Yoda plc, would accept or reject the investment and why. (10 marks) c) Explain the way in which depreciation can affect the results of both RoI and RI and the impact it may have on the decision making within Yoda plc, and within Luke Division in particular. (5 marks)

Answer rating: 100% (QA)

Date Page No Shivalal Luke leia 1350 520 830 1380 dhrisionol ... View the full answer