The Engine Division of the Cleveland Automotive Corporation Had Sales

question 76

Essay

The Engine Division of The Cleveland Automotive Corporation had sales of $7,200,000 and operating income of $864,000 last year. The total assets of the Engine Division were $3,200,000 while current liabilities were $800,000. The Cleveland Automotive Corporation's target rate of return is 13% while its weighted average cost of capital is 9%. The effective tax rate for the company is 45%.
Required:
a. Calculate the sales margin.
b. Calculate the capital turnover.
c. Calculate the return on investment (ROI).
d. Calculate the residual income.

Grasp the advantages and disadvantages of corporations as a form of business ownership.

Understand the role and responsibilities of the board of directors in a corporation.

Know the different strategic moves a corporation can make (e.g., mergers, acquisitions).

Comprehend the purpose and function of various defensive strategies against hostile takeovers.

---

Definitions:

Equilibrium Price

The price at which the quantity of a product demanded by consumers equals the quantity supplied by producers.

Diagram

A simplified drawing showing the appearance, structure, or workings of something.

Market Supply Curve

A graphical representation showing the total quantity of a good that sellers are willing and able to sell at various prices.

Output

The total quantity of goods and services produced by an economy, company, or process over a specific period.