Ashton Corporation recently announced a bonus plan to reward the manager of its most profitable division. The three divisional managers are to decide which performance measure will be used to evaluate profitability. Ashton Corporation requires a 10% minimum return on investment.
The following information is available for the year just ended.
| Division |
Gross
Book Value
of Assets |
Divisional
Operating
Income |
| Bristol |
$800,000 |
$94,660 |
| Darden |
749,400 |
91,650 |
| Gregory |
445,000 |
58,690 |
(a) Calculate return on investment.(Round ROI to 2 decimal places, e.g. 5.12%.)
Which division performed the best?
(b) Calculate residual income. (If the amount is negative then enter with a negative sign preceding the number e.g. -5,125 or parenthesis. e.g. (5,125).)
(c) Assume that Ashton's weighted-average cost of capital is 6% and its tax rate is 21%. Calculate economic value added. (If the amount is negative then enter with a negative sign preceding the number e.g. -5,125 or parenthesis. e.g. (5,125).)