The Global Products Corporation has three subsidiaries. a. which division has th

Question

The Global Products Corporation has three subsidiaries.

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

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 company?

medical supplies heavey machinery electronics sales 20,040,000 5,980,000 4,730,000 net income(after taxes) 1,700,000 592,000 402,000 assets 8,340,000 8,760,000 3,570,000

Explanation / Answer

a. Calculation of Return on Sales:

Medical Supplies: 1,700,000 / 20,040,000 = 8.48%

Heavey Machinery : 592,000 / 5,980,000 = 9.90%

Electronics: 402,000 / 4,730,000 = 8.50%

Medical Supplies has Lowest Return on Sales

b. Return on Assets:

Medical Supplies: 1,700.000 / 8,340,000 = 20.38%

Heavey Machinery = 592,000 / 8,760,000 = 6.76%

Electronics = 402,000 / 3,570,000 = 11.26%

Medical Supplies has Highest Return on Assets

c. Total Assets = 8,340,000 + 8,760,000 + 3,570,000 = $20,670,000

Total Net Income = 1,700,000 + 592,000 + 402,000 = $2,694,000

Return on Assets for Corporation = 2,694,000 / 20,670,000 = 13.03%

d. New Assets of Medical Supplies = 8,340,000 + 8,760,000 = $17,100,000

New Net Income = 17,100,000 x 20.38% = $3,484,980

New Return on Assets = 3,886,980 / 20,670,000 = 18.80%

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