Mesopotamian Materials Inc *Net Income Is After Tax but Before Interest MMI's Weighted

question 25

Multiple Choice

Mesopotamian Materials Inc. (MMI) has two decentralized divisions (Ur and Babylon) that have decision making responsibility over the amount of resources invested in their divisions. Recent financial extracts for both divisions are presented below: $$\begin{array} { | l | r | r | } \hline & \mathbf { U r } & \text { Babylon } \\\hline \text { Fixed assets, gross } & \$ 2,500 & \$ 4,000 \\\hline \text { Accumulated depreciation } & \$ 1,500 & \$ 1,200 \\\hline \text { Other assets } & \$ 500 & \$ 750 \\\hline \text { Liabilities } & \$ 500 & \$ 1,000 \\\hline \text { Sales } & \$ 6,750 & \$ 7,200 \\\hline \text { Netincome aftertax } & \$ 743 & \$ 1,008 \\\hline \text { Average age of fixed assets (years) } & 15 & 5 \\\hline\end{array}$$ *Net income is after tax but before interest MMI's weighted average cost of capital (WACC) is 11.5%. The MMI measures division performance based on the book value of net assets. The producer price index 15 years ago was 100, 116 five years ago, and currently is 125.
Using historical costs, which is true?

• A)Ur's return on sales (net income percentage) is 14%
• B)Ur's return on net assets (RONA) is 74%
• C)Babylon's net asset turnover is 6.75
• D)Babylon's return on assets (ROA) is 40%
• E)None of the above

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