Sonic Inc. has reported the following information for its Home and Commercial Divisions: Sales: Invested assets:...

 

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Sonic Inc. has reported the following information for its Home and Commercial Divisions: Sales: Invested assets: Total costs and operating expenses: Minimum rate of return of the whole company: Required: a) Determine the following for both the Divisions: i) Income from operation: iii) Profit Margin iii) Investment turnover iv) Return on Investment (ROI) using DuPont formula ii) Residual Income b) Which division is more efficient in generating revenue and why? Problem 2B (8+4) Sonic has offered a new investment project to the Home Division. The following information is provided about the new project: Invested assets: Expected operating income: Therefore, the return on investment: Required: a) Calculate the following. If the manager of Home Division accepts the new project i) "Total Operating income ii) "Total Invested assets i) The total ROI: (Total Income from Operation/Total Invested Assets) Iv) The total residual income of the Home Division "Total = Home division + New project Home Division 8 9 Explanation: $3,000,000 $1,250,000 $2,400,000 15% Home Division. $1,000,000 $250,000 25.00% Commercial Division 7000000 4900000 5700000 15% Commercial Division b) If Sonic pays bonus using ROI as its performance evaluation tool, do you think the manager of Home division would accept the new project? Why or why not? Explain your answer in the text box below by referring to the calculations for Home Division in Problem 2A and 28. Sonic Inc. has reported the following information for its Home and Commercial Divisions: Sales: Invested assets: Total costs and operating expenses: Minimum rate of return of the whole company: Required: a) Determine the following for both the Divisions: i) Income from operation: iii) Profit Margin iii) Investment turnover iv) Return on Investment (ROI) using DuPont formula ii) Residual Income b) Which division is more efficient in generating revenue and why? Problem 2B (8+4) Sonic has offered a new investment project to the Home Division. The following information is provided about the new project: Invested assets: Expected operating income: Therefore, the return on investment: Required: a) Calculate the following. If the manager of Home Division accepts the new project i) "Total Operating income ii) "Total Invested assets i) The total ROI: (Total Income from Operation/Total Invested Assets) Iv) The total residual income of the Home Division "Total = Home division + New project Home Division 8 9 Explanation: $3,000,000 $1,250,000 $2,400,000 15% Home Division. $1,000,000 $250,000 25.00% Commercial Division 7000000 4900000 5700000 15% Commercial Division b) If Sonic pays bonus using ROI as its performance evaluation tool, do you think the manager of Home division would accept the new project? Why or why not? Explain your answer in the text box below by referring to the calculations for Home Division in Problem 2A and 28.

Answer rating: 100% (QA)

a i Income from Operation Sales Total costs and Operating Expenses Home Division 3000000 2400000 600... View the full answer