Exercise 25.4 (Algo) ROI versus EVA Measures (LO25-2, LO25-3, LO25-4) sailey uses ROI to measure the performance of its operating divisions and to reward its division managers. A summary of the annual eports from two of Bailey's divisions is shown provided below. The company's weighted-average cost of capital is 11 percent. Division A Division B $6,220,000 $. 650,000 $ 1,060,000 $ 8,530,000 $ 1,850,000 $ 1,182,100 Total assets Current liabilities After-tax operating income ROI 21% 13% a. Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and Division B. E. Suppose the manager of Division A was offered a one-year project that would increase her investment base by $340,000 and ncrease her divisional operating income by $34,000. Would she be motivated to invest in this project? Complete this question by entering your answers in the tabs below. Required A Required B. Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and Division B. EVA for Division A EVA for Division B
Exercise 25.4 (Algo) ROI versus EVA Measures (LO25-2, LO25-3, LO25-4) sailey uses ROI to measure the performance of its operating divisions and to reward its division managers. A summary of the annual eports from two of Bailey's divisions is shown provided below. The company's weighted-average cost of capital is 11 percent. Division A Division B $6,220,000 $. 650,000 $ 1,060,000 $ 8,530,000 $ 1,850,000 $ 1,182,100 Total assets Current liabilities After-tax operating income ROI 21% 13% a. Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and Division B. E. Suppose the manager of Division A was offered a one-year project that would increase her investment base by $340,000 and ncrease her divisional operating income by $34,000. Would she be motivated to invest in this project? Complete this question by entering your answers in the tabs below. Required A Required B. Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and Division B. EVA for Division A EVA for Division B
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Exercise 25.4 (Algo) ROI versus EVA Measures (LO25-2, LO25-3, LO25-4)
Bailey uses ROI to measure the performance of its operating divisions and to reward its division managers. A summary of the annual
eports from two of Bailey's divisions is shown provided below. The company's weighted-average cost of capital is 11 percent.
Division A
Division B
$6,220,000
$4
650,000
$ 1,060,000
$ 8,530,000
$ 1,850,000
$ 1,182,100
Total assets
Current liabilities
After-tax operating income
ROI
21%
13%
a. Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and
Division B.
c. Suppose the manager of Division A was offered a one-year project that would increase her investment base by $340,000 and
increase her divisional operating income by $34,000. Would she be motivated to invest in this project?
Comple
this question by entering your answers in the tabs below.
Required A
Required B
Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A
and Division B.
EVA for Division A
EVA for Division B
Required B >
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Transcribed Image Text:Bailey uses ROI to measure the performance of its operating divisions and to reward its division managers. A summary of the annual
reports from two of Bailey's divisions is shown provided below. The company's weighted-average cost of capital is 11 percent.
Division A
Division B
Total assets
Current liabilities
$ 6,220,000
$ 8,530,000
$ 1,850,000
$ 1,182,100
13%
$.
650,000
After-tax operating income
$ 1,060,000
ROI
21%
a. Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and
Division B.
c. Suppose the manager of Division A was offered a one-year project that would increase her investment base by $340,000 and
increase her divisional operating income by $34,000. Would she be motivated to invest in this project?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Suppose the manager of Division A was offered a one-year project that would increase her investment base by $340,000 and
increase her divisional operating income by $34,000. Would she be motivated to invest in this project?
Would she be motivated to invest in this project?
< Required A
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