The United World Corporation has three subsidiaries. Computers Magazines Cable T

Question

The United World Corporation has three subsidiaries. Computers Magazines Cable TV Sales $16,000,000 $4,000,000 $8,000,000 Net Income (after taxes) 1,000,000 160,000 600,000 Assets 5,000,000 2,000,000 5,000,000 If the $5,000,000 investment in the Cable TV division is soldoff and redeployed in the computer division at the same rate ofreturn on assets currently achieved in the computer division, whatwill be the new return on assets for the entire corporation? The United World Corporation has three subsidiaries. Computers Magazines Cable TV Sales $16,000,000 $4,000,000 $8,000,000 Net Income (after taxes) 1,000,000 160,000 600,000 Assets 5,000,000 2,000,000 5,000,000 If the $5,000,000 investment in the Cable TV division is soldoff and redeployed in the computer division at the same rate ofreturn on assets currently achieved in the computer division, whatwill be the new return on assets for the entire corporation? Computers Magazines Cable TV Sales $16,000,000 $4,000,000 $8,000,000 Net Income (after taxes) 1,000,000 160,000 600,000 Assets 5,000,000 2,000,000 5,000,000

Explanation / Answer

Return on redeployed assets incomputers   $5,000,000 x20%   =   $1,000,000 Net Icome after taxesComputers                                                  $,1,000,000 Net Income after taxesMagazines                                                     $160,000                                                                                                 -------------------       Total Net Income for the entirecorporation                      $2,160,000                                                                                                 =========== Assets in Computers afterredeployment   $5,000,000 +$5,000,000         =      $10,000,000 Assets inMagazines                                                                                        $2,000,000                                                                                                                   -------------------       Total assets for the entirecorporation                                              $12,000,000                                                                                                                   =========== Reuturn on assets for the entirecorporation    ==============================          Netincome for the entirecorporation              $2,160,000          ----------------------------------------------      =    ---------------    = 18%          Total assetsfor the entirecorporation            $12,000,000                               

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