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Shallowater Cattle Company

Selected Operating Division Information

Shallowater Cattle Company (SCC) has three operating divisions. In an attempt to evaluate the performance of those divisions and their managers, the following information has been compiled. Use this information to evaluate the performance of the three divisions and their managers. SCC has a weighted average cost of capital (WACC) of 12%.

	Hale Center Division	Floydada Division	Post Division
Sales Revenue (Net)	$180,000,000	$56,000,000	$5,500,000
Operating Expenses*	177,600,000	55,090,000	5,290,000
Operating Income	2,400,000	910,000	210,000
Working Capital#	3,600,000	1,120,000	220,000
Long-Term Assets#	6,400,000	2,380,000	280,000
Total Assets (Net)+#	10,000,000	3,500,000	500,000

*Operating expenses include cost of goods sold, exclude interest expense, and exclude any allocated central administrative expenses. Thus, operating expenses are direct expenses of the division.

+Working capital is defined as current assets less current liabilities. Thus, total assets (net) only include working capital.

#All balance sheet amounts are averages of amounts from beginning-of-year and end-of-year balance sheets.

Please compute and provide the following information. Show supporting computations.

	Hale Center Division	Floydada Division	Post Division
Return on Assets
Asset Turnover
Return on Sales
Economic Value Added
Division Percentage of Total Assets (Net)
Division Percentage of Sales Revenue (Net)
Division Percentage of Operating Income
Division Percentage of Economic Value Added

After adjusting for risk differences across divisions, the proper capital cost for each division is as noted in the table below. Please re-compute economic value added using these risk adjusted capital costs.

	Hale Center Division	Floydada Division	Post Division
Risk Adjusted Cost of Capital	8.5%	23.0%	5.0%
Economic Value Added
Division Percentage of Economic Value Added

Please compute and provide the following information. Show supporting computations.

	Hale Center Division	Floydada Division	Post Division
Working Capital as a Percentage of Total Assets (Net)
Working Capital as a Percentage of Sales Revenue (Net)

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