Question

Universal Electronics, Inc. (UEI), which started operations one year ago, has two divisions: Consumer and Commercial. Both divisions invest heavily in R&D, which is assumed to benefit five years. R&D spending is made uniformly throughout the year. UEI has a cost of capital of 11 percent. Selected financial information for the two divisions (in thousands of dollars) for the year just completed follows.

Answer 1

Date Answer 1. Return on Investment formula - Return too Investment a) ROI of consumer divinion - 51700 4.100 = 191. 30,000 b) Rol Of commercial dirixion = 5,985x100 = 1947. 31,500 Both performed Equally Assets 2. Residual Income formula Operating mcome - *** e-Arg operating x cost of 7 Capital a) el of consumer division → 9600- (34,500x 11".] = 5805 (6) Rl of commercial division => 10,710 - 138,250* 114.] o 6,502.5 In this, based on Residual Income consumer derinon Performed well.

3. Economic value Adeled. EVA - Operating — 1 cost of x [ Total Assets current liabilier mcome I capital a) [Va of consumer divinion = 8,300 — 111". * [37,500 – 3000] - 5,055 b) ruaOf commercial divinion > 8,460 - 4 11" x { 35250-0800] .: -) 4890.5 In ther, Bared on Economac value added connumer division performed Mello