The Truck Division of Estatoe Motors Inc. has been experiencing revenue and profit growth during the years 2008?2010. The divisional income statements are provided below.

Assume that there are no charges from service departments. The vice president of the division, Eddie Wadsley, is proud of his division?s performance over the last three years. The president of Estatoe Motors Inc., Kurt Hartisan, is discussing the division?s performance with Eddie, as follows:

Eddie: As you can see, we?ve had a successful three years in the Truck Division.

Kurt: I?m not too sure.

Eddie: What do you mean? Look at our results. Our income from operations has more than doubled, while our profit margins are improving.

Kurt: I am looking at your results. However, your income statements fail to include one very important piece of information; namely, the invested assets. You have been investing a great deal of assets into the division. You had $420,000 in invested assets in 2008, $800,000 in 2009, and $1,750,000 in 2010.

Eddie: You are right. I?ve needed the assets in order to upgrade our technologies and expand our operations. The additional assets are one reason we have been able to grow and improve our profit margins. I don?t see that this is a problem.

Kurt: The problem is that we must maintain a 20% rate of return on invested assets.

1. Determine the profit margins for the Truck Division for 2008?2010.

2. Compute the investment turnover for the Truck Division for 2008?2010.

3. Compute the rate of return on investment for the Truck Division for 2008?

2010.

4. Evaluate the division?s performance over the 2008?2010 time period. Why was Kurt concerned about the performance?

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Estatoe Motors Inc. Divisional Income Statements, Truck Division For the Years Ended December 31, 2008-2010 2008 2009 2010 Sales Cost of goods sold Gross profit Operating expenses Income from operations $1,400,000 987,000 $ 413,000 $840,000 605,000 $235,000 $1,200,000 856,000 S 344,000 109,000 $ 216,000 S 280,000 $126,000