Describe two disclosures required by the SEC with respect to executive compensation.
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ROI and RI with manufacturing costs. Excellent Motor Company makes electric cars and has two products, the Simplegreen and the Excellentgreen. To produce the Simplegreen, Excellent Motor employed assets of \(\$ 10,500,000\) at the beginning of 2017 and \(\$ 14,450,000\) of assets at the end of \(2017 .\) Other costs to manufacture the Simplegreen include the following: General administration and selling costs for Simplegreen total \(\$ 7,820,000\) in 2017 . During the year, Excellent Motor produced 11,000 Simplegreen cars using 6,000 setup-hours and 139,000 machine-hours. It sold these cars for $\$ 12,000$ each. 1\. Assuming that Excellent Motor defines investment as average assets during the period, what is the return on investment for the Simplegreen division? 2\. Calculate the residual income for Simplegreen if Excellent Motor has a required rate of return of \(16 \%\) on investments.
Doorchime Company makes doorbells. It has a weighted-average cost of capital of \(6 \%\) and total assets of \(\$ 5,690,000\). Doorchime has current liabilities of \(\$ 550,000 .\) Its operating income for the year was $\$ 630,000 .$ Doorchime does not have to pay any income taxes. One of the expenses for accounting purposes was a \(\$ 70,000\) advertising campaign run in early January. The entire amount was deducted this year, although the Doorchime CE0 believes the beneficial effects of this advertising will last 4 years. 1\. Calculate residual income, assuming Doorchime defines investment as total assets. 2\. Calculate EVA for the year. Adjust both the year-end assets and operating income for advertising assuming that for the purposes of economic value added the advertising is capitalized and amortized on a straightline basis over 4 years. 3\. Discuss the difference between the outcomes of requirements 1 and 2 . Which measure would you recommend, and why?
Cora Manufacturing makes fashion products and competes on the basis of quality and leading-edge designs. The company has two divisions, clothing and cosmetics. Cora has \(\$ 5,000,000\) invested in assets in its clothing division. After-tax operating income from sales of clothing this year is $\$ 1,000,000\(. The cosmetics division has \)\$ 12,500,000$ invested in assets and an after-tax operating income this year of \(\$ 2,000,000\). The weighted- average cost of capital for Cora is \(6 \%\) The CEO of Cora has told the manager of each division that the division that "performs best" this year will get a bonus. 1\. Calculate the ROI and residual income for each division of Cora Manufacturing, and briefly explain which manager will get the bonus. What are the advantages and disadvantages of each measure? 2\. The CEO of Cora Manufacturing has recently heard of another measure similar to residual income called EVA. The CEO has the accountant calculate adjusted incomes for clothing and cosmetics and finds that the adjusted after- tax operating incomes are \(\$ 634,200\) and \(\$ 2,181,600,\) respectively. Also, the clothing division has \(\$ 470,000\) of current liabilities, while the cosmetics division has only \(\$ 380,000\) of current liabilities. Using the preceding information, calculate the EVA for each division and discuss which manager will get the bonus. 3\. What nonfinancial measures could Cora use to evaluate divisional performances?
What special problems arise when evaluating performance in multinational companies?
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