Division A at Smith Co. produces four different products. There are no interrela
ID: 2550671 • Letter: D
Question
Division A at Smith Co. produces four different products. There are no interrelationships between the products, and the assets used to manufacture each product could be sold for their net book values. Data for the coming year are as follows:
Product A
Product B
Product C
Product D
Income
$301792
$88486
$387077
$172022
Assets
1497372
909886
2537268
1225563
If the Division A manager decides to dispose of product B by selling the assets and returning the cash proceeds on sale of the assets to the company, what would be the resulting overall divisional ROI?
Product A
Product B
Product C
Product D
Income
$301792
$88486
$387077
$172022
Assets
1497372
909886
2537268
1225563
Explanation / Answer
BEFORE SELLING PRODUCT-B SEGMENT Product A Product B Product C Product D Total Net income 301792 88486 387077 172022 949377 Assets 1,497,372 909886 2537268 1225563 6170089 ROI 20.15% 9.72% 15.26% 14.04% 15.39% (Income/Assets *100) AFTER SELLING PRODUCT-B SEGMENT v Product A Product C Product D Total Net income 301792 387077 172022 860891 Assets 1,497,372 2537268 1225563 5260203 ROI 20.15% 15.26% 14.04% 16.37% (Income/Assets *100) hence, ROI after selling is 16.37% for Division, which has been improved.