Lasky Manufacturing has two divisions: Carolinas and Northeast. Lasky has a cost of capital of...
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Finance
Lasky Manufacturing has two divisions: Carolinas and Northeast. Lasky has a cost of capital of 7.5 percent. Selected financial information (in thousands of dollars) for the first year of business follows:
Carolinas
Northeast
Sales revenue
$ 1,500
$ 5,400
Income
190
372
Divisional assets (beginning of year)
1,000
1,500
Current liabilities (beginning of year)
230
230
R&D expendituresa
750
670
aR&D is assumed to benefit two periods. All R&D is spent at the beginning of the year.
Required:
a-1. Evaluate the performance of the two divisions assuming Lasky Manufacturing uses residual income.
a-2. Which division had the better performance?
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