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Q1) Innovative Furnishing Solutions (IFS), division of Steelman Corporation buys and installs modular office components. For the most recent year, division had the following performance targets:

Asset turnover 2.5
Profit margin 6%
Target rate of return on investments for RI 13%
Cost of capital 10%
Income tax rate 40%

Actual information concerning company's performance for last year follows:

Total assets at beginning of year $3,600,000
Total assets at end of year 5,300,000
Total invested capital (annual average) 8,000,000
Sales 9,000,000
Variable operating costs 3,650,000
Direct fixed costs 4,770,000
Allocated fixed costs 675,000

problems:

a. For IFS, find out segment margin and average assets for the year.

b. Based on segment margin and average assets, find out profit margin, asset turnover and ROI.

c. Estimate ROI performance of IFS.

d. Using your answer from part b., find out residual income of IFS.

e. find out EVA of IFS. Why are EVA and RI levels different?

f. Based on data given in the problem, describe why ROI, EVA and RI may be inappropriate measures of performance for IFS.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M919670

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