Stevens Company Has Two Divisions That Report on a Decentralized

question 5

Essay

Stevens Company has two divisions that report on a decentralized basis.Their results for the current year were as follows:
$$\begin{array} { l c c } & \text { Halmet } & \text { Ball } \\\text { Sales } & \$ 150,000 & \$ 300,000 \\\text { Income } & \$ 15,000 & \$ 45,000 \\\text { Asset base } & \$ 7,000 & \$ 150,000 \\\text { Weighted average cost of capital }& 12 \% & 12 \%\end{array}$$ Compute the following amounts for each division:
a.Return on investment (ROI)if the desired rate of return is 12 percent.
b.Residual income if the desired rate of return is 20 percent.
c.EVA.
d.Turnover.
e.Margin for each division.

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Definitions:

Normative Pressure

The influence of societal norms and expectations on an individual's behavior.

Risky Shift

The phenomenon where groups tend to make riskier decisions compared to the decisions made by individuals.

Riskier Decisions

Refers to choices made under conditions of uncertainty that have a significant chance of leading to negative outcomes.

Group

A number of individuals or items that are considered or classed together because of common characteristics, attributes, or traits.