Cora Manufacturing makes fashion products and competes on the basis of quality and leading- edge designs. The
Question:
Required
1. Calculate the ROI and residual income (using the weighted- average cost of capital) for each division of Cora Manufacturing, and briefly explain which manager will get the bonus. What are the advantages and disad-vantages of each measure?
2. The CEO of Cora Manufacturing has recently heard of another measure similar to residual income called EVA. The CEO has the accountant calculate EVA adjusted incomes of clothing and cosmetics, and finds that the adjusted after- tax operating incomes are $ 401,400 and $ 2,067,200, respectively. Also, the clothing division has $ 270,000 of current liabilities, while the cosmetics division has only $ 120,000 of current liabilities. Using the preceding information, calculate EVA and discuss which division manager will get the bonus.
3. What nonfinancial measures could Cora use to evaluate divisional performances?
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...
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Managerial Accounting Decision Making and Motivating Performance
ISBN: 978-0137024872
1st edition
Authors: Srikant M. Datar, Madhav V. Rajan
Question Posted: