Question: Back Mountain Industries (BMI) has two divisions:
Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost-of-capital of 15%. Selected financial information (in thousands of dollars) for the first year of business follows: 
a R&D is assumed to benefit two periods. All R&D is spent at the beginning of the year. Required Evaluate the performance of the two divisions assuming BMI uses return on investment (ROI).
Transcribed Image Text:
East West Sales revenue ... .$1,000 $5,000 Income.... .. 200 390 Investment (beginning of year)......2,000 3,000 200 Current liabilities (beginning of year)... 200 R&D expenditures (note a)... 500 400
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> “If every division manager maximizes divisional income, we will maximize firm income. Therefore, divisional income is the best performance measure.” Comment.
> A company prepares the master budget by taking each division manager’s estimate of revenues and costs for the coming period and entering the data into the budget without adjustment. At the end of the year, division managers are given a bonus if their act
> What are the dangers of using only business unit measures to evaluate the performance of business unit managers?
> How does EVA differ from residual income?
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> What are the advantages of using an ROI-type measure rather than the absolute value of division profits as a performance evaluation technique for business units?
> I thought evaluating performance would be easier than this. I have three vice presidents, operating the same business in three different countries. I need to be able to compare them in order to prepare compensation recommendations to the board. The probl
> Biddle Company uses EVA to evaluate the performance of division managers. For the Wallace Division, after-tax divisional income was $400,000 in year 3. The company adjusts the after-tax income for advertising expenses. First, it adds the annual advertisi
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> Refer to the data in Exercise 14-34. In Exercise 14-34 Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost-of-capital of 15%. Selected financial information (in thousands of dollars) for the first year of business follows:
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> Refer to the data in Exercise 14-34. In Exercise 14-34 Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost-of-capital of 15%. Selected financial information (in thousands of dollars) for the first year of business follows:
> Upper Division of Lower Company acquired an asset with a cost of $600,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows: Year ________________Cash Flow 1 . . . . . . . . . . . . . .
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