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Calculate an alternative RI for each division

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Question - Comfy Ltd manufactures furniture in several divisions, including the Home Division and the Outdoor Division. The company's required rate of return is 8%. Some divisional financial measures for the current quarter are as follows:

 

Home Division

Outdoor Division

Total assets

$1,650,000

$1,425,000

Current liabilities

$330,000

$420,000

Operating profit

$124,000

$128,000

The Home Division manager argues that the Outdoor Division has 'loaded up a lot of short-term debt' to boost its RI. Calculate an alternative RI for each division that is not sensitive to the amount of short-term debt taken on by the divisions. Comment on the result.

Reference no: EM133063701

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