Hudson Company Has Two Divisions Operating Income Before Taxes Required:
1

question 93

Essay

Hudson Company has two divisions.The following information is available:
$$\begin{array}{l}\begin{array} { l l } &\text { North Division } & \text { South Division } \\\text { Revenue for year }&\$ 300,000 & \$ 500,000\end{array}\end{array}$$
Operating income before taxes
$\begin{array}{lll}\text { for year } & \$ 100,000 & \$ 90,000 \\\text { Average invested capital for year } & \$ 100,000 & \$ 200,000 \\\text { Invested capital at end of year } & \$ 200,000 & \$ 300,000 \\\text { Taxrate } & 30 \% & 30 \% \\\text { After-tax cost of capital for year } & 20 \% & 15 \%\end{array}$
Required:
1.Using operating income after taxes as the income measure,compute the following for each division:
A) Return on investment.
B) Return on sales
C) Capital turnover
D) Residual income
2. Which division is more successful? Why?

• A) Return on investment.
• B) Return on sales
• C) Capital turnover
• D) Residual income
• 2. Which division is more successful? Why?

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