Question

Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost of capital of 15 percent. Selected financial information (in thousands of dollars) for the first year of business follows. East West Sales revenue $ 4,000 $ 8,000 Income 725 840 Investment (beginning of year) 1,750 3,000 Current liabilities (beginning of year) 350 350 R

Answer 1

The question revolves around the financial performance analysis of BMI's divisions, where ROI is calculated for East and West divisions and compared to BMI's cost of capital.

Step-by-step explanation:

The student's question pertains to the financial analysis of Back Mountain Industries' two divisions: East and West. To evaluate the performance of each division, we can calculate their return on investment (ROI). The ROI is determined by dividing the income by the investment and then multiplying by 100 to get a percentage. For the East Division, the ROI would be (725 / 1,750) × 100, which equals approximately 41.43%. For West Division, the ROI would be (840 / 3,000) × 100, which equals approximately 28%. Comparing these ROIs with the company's cost of capital, which is 15 percent, we can see that both divisions are performing above the threshold.