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.
Consumer | Commercial | ||||||
Sales revenue | $ | 34,000 | $ | 55,000 | |||
Divisional income | 6,300 | 6,450 | |||||
Divisional investment | 30,500 | 32,250 | |||||
Current liabilities | 2,200 | 2,000 | |||||
R&D | 2,200 | 2,200 | |||||
Required:
Evaluate the performance of the two divisions assuming UEI uses economic value added (EVA).
Ans. : Economic value added:
* It is an estimate of firms economic profit or the value created in excess of required return of company shareholders.
* Economic value added = Net operating profit after tax - (Capital invested * weighed cost of capital)
* Where capital invested = Equity + long term debt, Net operating profit after tax = Earning before interest and tax * ( 1 - Tax rate).
* In EVA, Research and development cost are capitalised which means that these cost are considered as long term assets.
* EVA in case of Consumer division = division income - divisional investment * Cost of capital
= 6300 - 30,500 * 11%
= 6300 - 3355 = 2,945 ( in thousands of dollars).
* EVA in case of commercial decision = 6450 - 32250* 11%
= 6450 - 3547.5
= 2902.5 (in thousands of dollars)
* Performance of consumer division is good as it gives incremental EVA of 42.5 (in thousands of dollars).
Universal Electronics, Inc. (UEI), which started operations one year ago, has two divisions: Consumer and Commercial....
Check my work 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. points Skipped Sales revenue Divisional income Divisional investment Current liabilities R&D Consumer $34,000 6,100...
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. Sales revenue Divisional income Divisional investment Current liabilities R&D Consumer $30,000 5,400 29,500 1,800 1,800 Commercial $49,000...
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. Consumer Commercial Sales revenue $ 38,000 $ 61,000 Divisional income 7,300 7,425 Divisional investment 31,500 33,750 Current...
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. Consumer Commercial Sales revenue $ 36,000 $ 58,000 Divisional income 6,510 6,930 Divisional investment 31,000 33,000 Current...
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. Sales revenue Divisional income Divisional investment Current liabilities R&D Consumer $52,000 10,900 35,000 4,000 4,000 Commercial $82,000...
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. Consumer Commercial Sales revenue $ 54,000 $ 85,000 Divisional income 11,500 11,925 Divisional investment 35,500 39,750 Current...
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. UEl 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. Sales revenue Divisional income Divisional investment Current liabilities R&D Consumer 54,000 11,500 35,500 4,200 4,200 Commercial 85,000...
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. Commercial $49,000 5,535 Sales revenue Divisional income Divisional investment Current liabilities R&D Consumer $30,000 5,310 29,500 1,800...
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. Sales revenue Divisional income Divisional investment Current liabilities R&D Consumer $62,000 12,750 37,500 5,000 5,000 Commercial $97,000...
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. Commercial Consumer $52,000 5,985 31,500 1,800 2,000 Sales revenue $32,000 Divisional income 5,700 30,000 2,000 2,000 Divisional...