29BP_d The Global Products Corporation ... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 29BP_d (page 84)

The Global Products Corporation has three subsidiaries.
Medical supplies
Heavy machinery
Electronics
Sales
$20,040,000
$5,980,000
$4,730,000
Net Income (after tax)
1,700,000
592,000
402,000
Assets
8,340,000
8,760,000
3,570,000
d. If the $8,760,000 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?

Short Answer

Expert verified

The return on assets of the entire corporation after deployment of assets in the medical supplies is 18.81%.

Step by step solution

Return on redeployed assets in medical supplies

$\begin{array}{rcl} Return on redeployed assets & = & Redeployed assets 脳 Return on assets of medical supplies \\ = & $ 8, 760, 000 脳 20.38 % \\ = & $ 1, 785, 288 \end{array}$

Return on assets for the entire corporation

$\begin{array}{rcl} Return on assets & = & \frac{Net income}{Assets} \\ = & \frac{$ 1, 700, 000 + $ 1, 785, 288 + $ 402, 000}{$ 8, 340, 000 + $ 8, 760, 000 + $ 3, 570, 000} \\ = & \frac{$ 3, 887, 288}{$ 20, 670, 000} \\ = & 18.81 % \end{array}$

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	Capable corporation	Muli-media inc
Net income	\(31,200	\)140,000
Sales	317,000	2,700,000
Total assets	402,000	965,000
Total debts	163,000	542,000
Stockholder鈥檚 equity	239,000	423,000

Selling and administrative expenses	$328,000
Depreciation expenses	195,000
Sales	1,660,000
Interest expenses	129,000
Cost of goods sold	560,000
Taxes	171,000

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Short Answer

Step by step solution

Return on redeployed assets in medical supplies

Return on assets for the entire corporation

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	Medical supplies	Heavy machinery	Electronics
Sales	\(20,040,000	\)5,980,000	\(4,730,000
Net Income (after tax)	1,700,000	592,000	402,000
Assets	8,340,000	8,760,000	3,570,000