Reference no: EM132863244

Question - Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVA®), the increase in the balance sheet and the increase in after-tax operating income would be as given below:

Division Operating Income Average Total Assets Value of Intangibles Intangibles' Effect on Income

Soap products $3,241,500 $59,991,500 $1,491,500 $991,500

Skin lotions 2,741,500 32,991,500 7,991,500 5,991,500

Hair products 4,991,500 54,991,500 991,500 691,500

Minimum desired rate of return 5.00% Cost of capital 4.00%

Required -

1. Calculate the return on investment (ROI) for each division.

2. Calculate the residual income (RI) for each division.

3. Calculate EVA for each division.