The following data are available for two divisions of Ryan Enterprises: Alpha Division $7,380,000 32,180,000 Division operating profit Division investment The cost of capital for the company is 7 percent. Ignore taxes. Required: a-1. Calculate the ROI for both Alpha and Beta divisions. a-2. If Ryan measures performance using ROI, which division had the better performance? b-1. Calculate the EVA for both Alpha and Beta divisions. (The divisions have no current liabilities.) b-2. If Ryan measures performance using economic value added, which division had the better performance? c. Would your evaluation change if the company's cost of capital was 10 percent, 1. when evaluated by ROI? 2. when evaluated by EVA? Complete this question by entering your answers in the tabs below. Reg A1 Reg A2 Req B1 Calculate the ROI for both Alpha and Beta divisions. Note: Enter your answers as a percentage rounded to 2 decimal place (i.e., 32.12). Divisions Alpha Beta Beta Division $ 1,260,000 3,180,000 ROI ** % Req B2 Req C1 Req C2
The following data are available for two divisions of Ryan Enterprises: Alpha Division $7,380,000 32,180,000 Division operating profit Division investment The cost of capital for the company is 7 percent. Ignore taxes. Required: a-1. Calculate the ROI for both Alpha and Beta divisions. a-2. If Ryan measures performance using ROI, which division had the better performance? b-1. Calculate the EVA for both Alpha and Beta divisions. (The divisions have no current liabilities.) b-2. If Ryan measures performance using economic value added, which division had the better performance? c. Would your evaluation change if the company's cost of capital was 10 percent, 1. when evaluated by ROI? 2. when evaluated by EVA? Complete this question by entering your answers in the tabs below. Reg A1 Reg A2 Req B1 Calculate the ROI for both Alpha and Beta divisions. Note: Enter your answers as a percentage rounded to 2 decimal place (i.e., 32.12). Divisions Alpha Beta Beta Division $ 1,260,000 3,180,000 ROI ** % Req B2 Req C1 Req C2
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The following data are available for two divisions of Ryan Enterprises:
Alpha Division
$ 7,380,000
32,180,000
Division operating profit
Division investment
The cost of capital for the company is 7 percent. Ignore taxes.
Required:
a-1. Calculate the ROI for both Alpha and Beta divisions.
a-2. If Ryan measures performance using ROI, which division had the better performance?
b-1. Calculate the EVA for both Alpha and Beta divisions. (The divisions have no current liabilities.)
b-2. If Ryan measures performance using economic value added, which division had the better performance?
c. Would your evaluation change if the company's cost of capital was 10 percent,
1. when evaluated by ROI?
2. when evaluated by EVA?
Complete this question by entering your answers in the tabs below.
Req A1
Reg A2
Req B1
Calculate the ROI for both Alpha and Beta divisions.
Note: Enter your answers as a percentage rounded to 2 decimal place (i.e., 32.12).
Divisions.
Beta Division
$ 1,260,000
3,180,000
Alpha
Beta
ROI
%
Reg B2
Req C1
Req C2
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VIEWStep 4: b-1 Calculate the EVA for both Alpha and Beta divisions:
VIEWStep 5: b-2 Determine the division that is performing better based on EVA:
VIEWStep 6: (c) Determine the change if the company’s cost of capital was 10 percent:
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