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 | Operating Income |
Average Total Assets |
Value of Intangibles |
Intangibles’ Effect on Income |
||||||||
| Soap products | $ | 3,249,000 | $ | 59,999,000 | $ | 1,499,000 | $ | 999,000 | ||||
| Skin lotions | 2,749,000 | 32,999,000 | 7,999,000 | 5,999,000 | ||||||||
| Hair products | 4,999,000 | 54,999,000 | 999,000 | 699,000 | ||||||||
| Minimum desired rate of return | 5.00 | % | ||||||||||
| Cost of capital | 4.00 | % | ||||||||||
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.
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Heather Smith Cosmetics (HSC) manufactures a variety of products
and is organized into three divisions (investment...
Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment...
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...
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