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Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVA"), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Division Soap products Skin lotions Hair products Minimum desired rate of return Cost of capital Operating Income $3,248,500 2,748,500 4,998,500 1. Return on investment (ROI) 2. Residual income (Ri) 3. EVAⓇ 5.00% 4.00% Soap Products Average Total Assets $ 59,998,500 32,998,500 54,998,500 Required: 1. Calculate the return on investment (ROI) for each division. (Round your answers to 2 decimal places. (i.e. .1234 -12.34%)) 2. Calculate the residual income (RI) for each division. 3. Calculate EVA for each division. % Skin Lotions Value of Intangibles $1,498,500 7,998,500 998,500 % Intangibles Effect on Income $ 998,500 5,998,500 698,500 Hair Products %

Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVA"), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Division Soap products Skin lotions Hair products Minimum desired rate of return Cost of capital Operating Income $3,248,500 2,748,500 4,998,500 1. Return on investment (ROI) 2. Residual income (Ri) 3. EVAⓇ 5.00% 4.00% Soap Products Average Total Assets $ 59,998,500 32,998,500 54,998,500 Required: 1. Calculate the return on investment (ROI) for each division. (Round your answers to 2 decimal places. (i.e. .1234 -12.34%)) 2. Calculate the residual income (RI) for each division. 3. Calculate EVA for each division. % Skin Lotions Value of Intangibles $1,498,500 7,998,500 998,500 % Intangibles Effect on Income $ 998,500 5,998,500 698,500 Hair Products %

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter15: Financial Statement Analysis
Section: Chapter Questions
Problem 60P
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Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVA"), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Division Soap products Skin lotions. Hair products Minimum desired rate of return Cost of capital Operating Income $ 3,248,500 2,748,500 4,998,500 1. Return on investment (ROI) 2. Residual income (RI) 3. EVAⓇ Soap Products 5.00% 4.00% % Average Total Assets $ 59,998,500 32,998,500 54,998,500 Required: 1. Calculate the return on investment (ROI) for each division. (Round your answers to 2 decimal places. (i.e. .1234 = 12.34% ) ) 2. Calculate the residual income (RI) for each division. 3. Calculate EVA for each division. Skin Lotions Value of Intangibles $ 1,498,500 7,998,500 998,500 % Intangibles Effect on Income $ 998,500 5,998,500 698,500 Hair Products
Transcribed Image Text:Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVA"), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Division Soap products Skin lotions. Hair products Minimum desired rate of return Cost of capital Operating Income $ 3,248,500 2,748,500 4,998,500 1. Return on investment (ROI) 2. Residual income (RI) 3. EVAⓇ Soap Products 5.00% 4.00% % Average Total Assets $ 59,998,500 32,998,500 54,998,500 Required: 1. Calculate the return on investment (ROI) for each division. (Round your answers to 2 decimal places. (i.e. .1234 = 12.34% ) ) 2. Calculate the residual income (RI) for each division. 3. Calculate EVA for each division. Skin Lotions Value of Intangibles $ 1,498,500 7,998,500 998,500 % Intangibles Effect on Income $ 998,500 5,998,500 698,500 Hair Products
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