Houghton Chemicals, which started operations one year ago, has two divisions: Alloys and Petro. Both divisions invest heavily in R&D, which is assumed to generate benefits for five years. R&D spending is made uniformly throughout the year. Houghton Chemicals has a cost of capital of 11 percent. Selected financial information for the two divisions (in thousands of dollars) for the year just completed follows: Sales revenue Divisional income. Divisional investment Current liabilities R&D Alloys $ 7,400 777 5,550 160 200 EVA of Alloys division EVA of Petro division Which division performed better? Petro $ 5,500 945 7,000 200 300 Required: Evaluate the performance of the two divisions assuming Houghton Chemicals uses economic value added (EVA). Note: Enter your answers in thousands of dollars rounded to 1 decimal place. The Petro division performed better
Houghton Chemicals, which started operations one year ago, has two divisions: Alloys and Petro. Both divisions invest heavily in R&D, which is assumed to generate benefits for five years. R&D spending is made uniformly throughout the year. Houghton Chemicals has a cost of capital of 11 percent. Selected financial information for the two divisions (in thousands of dollars) for the year just completed follows: Sales revenue Divisional income. Divisional investment Current liabilities R&D Alloys $ 7,400 777 5,550 160 200 EVA of Alloys division EVA of Petro division Which division performed better? Petro $ 5,500 945 7,000 200 300 Required: Evaluate the performance of the two divisions assuming Houghton Chemicals uses economic value added (EVA). Note: Enter your answers in thousands of dollars rounded to 1 decimal place. The Petro division performed better
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing
Section: Chapter Questions
Problem 1CE: Forchen, Inc., provided the following information for two of its divisions for last year: Required:...
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