Question 3 2 19 Time Rote Tyson Electronics operates with two divisions. The divisional results for 2011 and 2010 are presented below. 18 % % % % 1 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.7 0.7 83 0.7 0.9 43 0.6 12 97 69 56 43 31 51 31 12 42 0.9 89 0.8 64 0.8 72 0.7 41 0.5 24 0.5 0.8 0.7 0.7 0.7 0.6 0.5 0.5 0.4 Division A '000 2011 2010 2000 1800 150 162 1000 900 Division B '000 2011 2010 660 500 66 40 600 500 0.9 0.9 0.4 0.4 0.8 63 0.7 13 0.6 81 0.6 21 0.5 93 0.5 67 0.5 43 0.4 76 22 84 47 50 19 Sales Operating Profit Capital Employed 6 7 82 8 9 08 14 PRESENT VALUE of 1 1 23 4 5 6 7 8 9 10 5 6 7 9 11 12 13 14 15 16 17 20 % % % % % % % % % % % % % % % 74 % % % % % 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.5 0.8 0.8 0.8 0.8 0.8 0.8 0.3 0.3 90 80 71 62 52 43 35 26 17 09 01 93 85 77 70 62 55 47 40 33 280 & 25 07 90 73574228 09 0.7 0.7 0.7 0.7 0.7 18 06 94 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.5 0.5 31 15 40 16 94 0.6 0.6 0 93 75 58 0993 19 551 05 0.8 0.7 0.1 0.6 0.5 * 4.9 02 461 24 88 55 23 92 63 35 08 83 59 36 13 92 72 52 34 16 99 82 0.9 0.3 0.3 0.7 0.7 0.7 0.6 0.6 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 642 8 37 90 46 05 66 30 96 64 35 07 80 56 32 10 90 70 5235 0.9 0.8 0.3 0.7 0.7 0.6 0.6 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.2 0.2 733 71 13 60 11 65 23 83 47 13 32 52 25 00 76 54 33 14 96 79 0.9 0.8 0.7 0.7 0.6 0.6 0.5 0.5 0.5 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2 8 23 53 89 31 17 27 82 40 02 67 34 04 76 51 27 05 85 66 49 33 0.9 0.8 0.7 0.7 0.6 0.5 0.5 0.5 0.4 0.4 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.1 9 14 37 66 03 45 92 44 00 60 24 91 61 33 03 84 63 43 25 0994 10 05 20 44 16 0.5 0.3 0.22 0.3 95 7047 2. 0.1 0.1 0.1 0.9 0.8 0.7 0.6 0.6 0.5 0.5 0.4 0.4 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.1 11 96 04 22 50 85 27 75 29 88 50 17 87 61 37 15 95 78 62 43 35 12 0.7 0.7 35.5 0.4 0.4 0.3 0.2 0.3 0.2 0.2 0.2 0.2 0.1 0.19 0.1 0.1 0.3 0.7 0.6 0.6 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.0 13 79 73 S 0.5 0.5 0.4 02 0.2 0.2 0.1 2 63 45 30 16 | 14 70 58 61 77 05 42 88 40 99 63 32 05 81 6041 25 11 99 88 78 0.3 0.7 0.6 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 1561 43 42 55 81 1762 15 75 39 0933 60 40 23 03 95 84 74 65 0.8 0.7 0.6 0.5 0.4 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 16 53 23 23 34 58 94 39 92 52 138 63 41 23 07 9381 11 62 54 0.8 0.7 0.6 0.5 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 170.1 0.5 0.4 03 02 0.2 0.2 0.1 0.1 0 0.0 0.0 0.0 0.0 00 36 0.6 0.8 1.9656 0.153 0.0 0.0 38 18 51 19 28 36 70 75 96 31 77 32 94 64 38 16 98 83 70 60 51 43 37 31 0.5 0.6 0.5 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 20 73 54 56 77 12 58 15 78 49 24 04 87 73 61 51 43 37 31 26 58 52 08 91 76 63 0.4 86 0.3 22 0.2 62 0.1 0.8 0.7 0.6 0.3 0.2 0.2 0.6 The Board of Tyson set a target Return on Capital (ROCE) for each division and divisional managers are given a substantial bonus if the target is met. A new Chief Finance Officer has been appointed and she feels Tyson should use a range of performance measures including Residual Income and also non financial measures. The Chief Executive disagrees. She believes that using only one measure provides a clearer focus and argues that ROCE should be the primary objective for a business and its management. Tyson has calculated its cost of capital at 12%. You may assume that the company does not pay Corporation Tax. 0.1 0.8 87 0.1 37 88 01 97 44 97 86 57 31 08 87 68 24 01 58 29 04 15 0.3 68 0.3 26 0.2 04 0.0 93 0.0 0.8 0.7 0.6 0.1 0.1 0.1 0.1 0.0 28 71 Required 14 05 36 17 70 31 98 25 08 80 69 60 52 44 0.8 70 0.1 71 0.3 50 0.3 46 0.1 30 0.1 93 0.0 81 0.0 87 12 11 95 94 0.4 (a) (a 80 0.1 69 0.0 59 0.0 44 0.0 0.8 0.2 0.1 0.0 0.0 Using ratio analysis fully evaluate the performance of each division in 2011 and for each division explain any change in performance from 2010 (5 marks) 86 0.0 (b (b) Critically comment on the Chief Executive's viewpoint by appraising the strengths and weaknesses of Return on Capital Employed as a performance measure. . (5 marks) (C) ( Using the company's cost of capital determine and comment on the Residual Income for each division in 2011. In your commentary clarify what is meant by the term "cost of capital." 5 (5 marks) (d) (d END OF PAPER As the new Chief Finance Officer put forward an argument why Tyson should use non-financial measures to appraise the performance of its two divisions. (5 marks) ( (Total 20 marks) END OF QUESTIONS Table on next page... Question 3 2 19 Time Rote Tyson Electronics operates with two divisions. The divisional results for 2011 and 2010 are presented below. 18 % % % % 1 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.7 0.7 83 0.7 0.9 43 0.6 12 97 69 56 43 31 51 31 12 42 0.9 89 0.8 64 0.8 72 0.7 41 0.5 24 0.5 0.8 0.7 0.7 0.7 0.6 0.5 0.5 0.4 Division A '000 2011 2010 2000 1800 150 162 1000 900 Division B '000 2011 2010 660 500 66 40 600 500 0.9 0.9 0.4 0.4 0.8 63 0.7 13 0.6 81 0.6 21 0.5 93 0.5 67 0.5 43 0.4 76 22 84 47 50 19 Sales Operating Profit Capital Employed 6 7 82 8 9 08 14 PRESENT VALUE of 1 1 23 4 5 6 7 8 9 10 5 6 7 9 11 12 13 14 15 16 17 20 % % % % % % % % % % % % % % % 74 % % % % % 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.5 0.8 0.8 0.8 0.8 0.8 0.8 0.3 0.3 90 80 71 62 52 43 35 26 17 09 01 93 85 77 70 62 55 47 40 33 280 & 25 07 90 73574228 09 0.7 0.7 0.7 0.7 0.7 18 06 94 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.5 0.5 31 15 40 16 94 0.6 0.6 0 93 75 58 0993 19 551 05 0.8 0.7 0.1 0.6 0.5 * 4.9 02 461 24 88 55 23 92 63 35 08 83 59 36 13 92 72 52 34 16 99 82 0.9 0.3 0.3 0.7 0.7 0.7 0.6 0.6 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 642 8 37 90 46 05 66 30 96 64 35 07 80 56 32 10 90 70 5235 0.9 0.8 0.3 0.7 0.7 0.6 0.6 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.2 0.2 733 71 13 60 11 65 23 83 47 13 32 52 25 00 76 54 33 14 96 79 0.9 0.8 0.7 0.7 0.6 0.6 0.5 0.5 0.5 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2 8 23 53 89 31 17 27 82 40 02 67 34 04 76 51 27 05 85 66 49 33 0.9 0.8 0.7 0.7 0.6 0.5 0.5 0.5 0.4 0.4 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.1 9 14 37 66 03 45 92 44 00 60 24 91 61 33 03 84 63 43 25 0994 10 05 20 44 16 0.5 0.3 0.22 0.3 95 7047 2. 0.1 0.1 0.1 0.9 0.8 0.7 0.6 0.6 0.5 0.5 0.4 0.4 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.1 11 96 04 22 50 85 27 75 29 88 50 17 87 61 37 15 95 78 62 43 35 12 0.7 0.7 35.5 0.4 0.4 0.3 0.2 0.3 0.2 0.2 0.2 0.2 0.1 0.19 0.1 0.1 0.3 0.7 0.6 0.6 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.0 13 79 73 S 0.5 0.5 0.4 02 0.2 0.2 0.1 2 63 45 30 16 | 14 70 58 61 77 05 42 88 40 99 63 32 05 81 6041 25 11 99 88 78 0.3 0.7 0.6 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 1561 43 42 55 81 1762 15 75 39 0933 60 40 23 03 95 84 74 65 0.8 0.7 0.6 0.5 0.4 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 16 53 23 23 34 58 94 39 92 52 138 63 41 23 07 9381 11 62 54 0.8 0.7 0.6 0.5 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 170.1 0.5 0.4 03 02 0.2 0.2 0.1 0.1 0 0.0 0.0 0.0 0.0 00 36 0.6 0.8 1.9656 0.153 0.0 0.0 38 18 51 19 28 36 70 75 96 31 77 32 94 64 38 16 98 83 70 60 51 43 37 31 0.5 0.6 0.5 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 20 73 54 56 77 12 58 15 78 49 24 04 87 73 61 51 43 37 31 26 58 52 08 91 76 63 0.4 86 0.3 22 0.2 62 0.1 0.8 0.7 0.6 0.3 0.2 0.2 0.6 The Board of Tyson set a target Return on Capital (ROCE) for each division and divisional managers are given a substantial bonus if the target is met. A new Chief Finance Officer has been appointed and she feels Tyson should use a range of performance measures including Residual Income and also non financial measures. The Chief Executive disagrees. She believes that using only one measure provides a clearer focus and argues that ROCE should be the primary objective for a business and its management. Tyson has calculated its cost of capital at 12%. You may assume that the company does not pay Corporation Tax. 0.1 0.8 87 0.1 37 88 01 97 44 97 86 57 31 08 87 68 24 01 58 29 04 15 0.3 68 0.3 26 0.2 04 0.0 93 0.0 0.8 0.7 0.6 0.1 0.1 0.1 0.1 0.0 28 71 Required 14 05 36 17 70 31 98 25 08 80 69 60 52 44 0.8 70 0.1 71 0.3 50 0.3 46 0.1 30 0.1 93 0.0 81 0.0 87 12 11 95 94 0.4 (a) (a 80 0.1 69 0.0 59 0.0 44 0.0 0.8 0.2 0.1 0.0 0.0 Using ratio analysis fully evaluate the performance of each division in 2011 and for each division explain any change in performance from 2010 (5 marks) 86 0.0 (b (b) Critically comment on the Chief Executive's viewpoint by appraising the strengths and weaknesses of Return on Capital Employed as a performance measure. . (5 marks) (C) ( Using the company's cost of capital determine and comment on the Residual Income for each division in 2011. In your commentary clarify what is meant by the term "cost of capital." 5 (5 marks) (d) (d END OF PAPER As the new Chief Finance Officer put forward an argument why Tyson should use non-financial measures to appraise the performance of its two divisions. (5 marks) ( (Total 20 marks) END OF QUESTIONS Table on next page