Question

	You are an executive in a large healthcare company with five lines of business. There are no economies of scope (this will be discussed in a future module). Those lines of business order services (accounting, information technology, and warehousing) from three "service divisions" of the company. You are given the following information for the revenues, direct costs (e.g., costs of production), and capital (e.g., value of the property, plant, and equipment) associated with these five lines of business, as well as the total variable costs from the three 'internal services' divisions. (You are ignoring fixed corporate overhead costs which will not change with a change in the size of the company.) All dollar amounts are in millions of dollars.
	Business #	1	2	3	4	5
	Revenue	$5	$10	$25	$35	$25
	Total direct costs	$5	$8	$20	$25	$22
	Capital invested	$12	$12	$12	$12	$22
	Service division	Total variable costs
	1	$2
	2	$3
	3	$5
	For each business, calculate the return on capital, but ignore the indirect costs from the three service divisions. This is calculated as (revenue - total direct costs)/capital invested. You will enter this information, to three decimal places, in Moodle. A return of 12.46 percent would be reported as 0.125.

Answer 1

Answer

Business #		1	2	3	4	5
Revenue	A	5	10	25	35	25
Total direct costs	B	5	8	20	25	22
Revenue- Total Direct Cost	C=A-B	0	2	5	10	3
Capital invested	D	12	12	12	12	22
Return On Capital	E=C/D	0.000	0.167	0.417	0.833	0.136