Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions...
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Accounting
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 years operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSCs 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
$
3,249,500
$
59,999,500
$
1,499,500
$
999,500
Skin lotions
2,749,500
32,999,500
7,999,500
5,999,500
Hair products
4,999,500
54,999,500
999,500
699,500
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.
Answer & Explanation
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