Innovative Furnishing Solutions (IFS) a division of Steelman Corporation: Asset turnover Profit margin, Target rate of return on investments for RI, Cost of capital and other operational data, to compute the segment margin and the average assets for the year, the profit margin, asset turnover and ROI., the residual income of IFS; Also to compute EVA and explain Why are the EVA and RI levels different?
Innovative Furnishing Solutions (IFS), a division of Steelman Corporation buys and installs modular office components. For the most recent year, the division had the following performance targets:
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Asset turnover
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2.5
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Profit margin
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6%
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Target rate of return on investments for RI
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13%
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Cost of capital
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10%
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Income tax rate
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40%
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Actual information concerning the company's performance for last year follows:
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Total assets at beginning of year
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$3,600,000
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Total assets at end of year
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5,300,000
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Total invested capital (annual average)
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8,000,000
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Sales
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9,000,000
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Variable operating costs
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3,650,000
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Direct fixed costs
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4,770,000
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Allocated fixed costs
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675,000
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Required:
a. For IFS, compute the segment margin and the average assets for the year.
b. Based on segment margin and average assets, compute the profit margin, asset turnover and ROI.
c. Evaluate the ROI performance of IFS.
d. Using your answer from part b., compute the residual income of IFS.
e. Compute the EVA of IFS. Why are the EVA and RI levels different?
f. Based on the data given in the problem, discuss why ROI, EVA and RI may be inappropriate measures of performance for IFS.