Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost-of-capital of 15%. Selected financial information (in thousands of dollars) for the first year of business follows:

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. (Negative amounts should be indicated by a minus sign.)

East Residual Income

West Residual Income

Transcribed Image Text:

Sales revenue Income Investment (beginning of year) Current liabilities (beginning of year) R&D expenditures (note a) East $ 1,000 200 2,000 200 500 West $ 5,000 390 3,000 200 400 Sales revenue Income Investment (beginning of year) Current liabilities (beginning of year) R&D expenditures (note a) East $ 1,000 200 2,000 200 500 West $ 5,000 390 3,000 200 400

Answer rating: 100% (QA)

Residual Income RI Alternative measure to ROI called residu... View the full answer