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Homework answers / question archive / Problem 23 (Analysis by Divisions) The Global Corporation has three subsidiaries
Problem 23 (Analysis by Divisions) The Global Corporation has three subsidiaries. Sales Net income after taxes Assets Medical Supplies P20,000,000 1,200,000 8,000,000 Heavy Machinery P5,000,000 190,000 8,000,000 Electronics P4,000,000 320,000 3,000,000 Required: a. Which division has the lowest return on sales? b. Which division has the highest return on assets? c. Compute the return on assets for the entire corporation.
126 Chapter 6 d. If the P8,000,000 investment in the heavy machinery division is sold off and redeployed in the medical supplies subsidiary at the same rate of return on assets currently achieved in the medical supplies division, what will be the new return on assets for the entire corporation? Problem 24 (Using Ratios to Construct Financial Statements) Construct the current assets section of the to
d.since P8,000,000 of Heavy machinery assets are sold off and invested in medical supplies,
the new investment in medical supplies will be = P8,000,000 + 8,000,000
=>P16,000,000.
new profit on medical supplies = new investment * (existing net income of medical supplies) / existing assets.
=>16,000,000*1,200,000 / 8,000,000.
=>P2,400,000.
now,
net income for entire corporation = P2,400,000 for medical supplies +320,000 for electronics +nil for heavy machinery
=>P2,720,000.
assets employed = P16,000,000 for medical supplies +nil for heavy machinery+ 3,000,000 for electronics.=>P19,000,000.
return on assets = P 2,720,000 / 19,000,000*100
=>14.32%.
