5 Suppose you are an officer for Werthman Corporation and ar

5. Suppose you are an officer for Werthman Corporation and are presented with the following information regarding your two operating divisions:
		U.S.	European
	Division	Division
	Revenues	$27,800	$31,400
	Net operating profit after tax (NOPAT)	11,900	9,800
	Weighted average cost of capital (WACC)	7.00%	7.00%
	Beginning Net Operating Assets (NOA)	83,160	79,060
	Ending Net Operating Assets (NOA)	89,580	84,900
a.	Compute the residual operating income (ROPI) for each division.
b.	Compare the residual operating income (ROPI) for each division. Which division is performing better?
c.	What would you recommend to each division’s top manager to improve its performance?

Solution

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars US Division European Division Net operating profit after tax (NOPAT)         11,900.00             9,800.00 Beginning Net Operating Assets (NOA)         83,160.00           79,060.00 Ending Net Operating Assets (NOA)         89,580.00           84,900.00 Average Net Operating Assets (NOA) = (Beginning + Ending)/2         86,370.00           81,980.00 WACC 7% 7% Required Income = Avg NOA * WACC           6,045.90             5,738.60 Residual Income = NOPAT - Residual Income           5,854.10             4,061.40 b) Comparing residual Income US division is performing better c) To improve the performance manager should focus on increasing revenues and identify the ways in which it can be improved. Since if revenues increase there are high probability of higher NOPAT