ROI and economic value added. The Bella Vista Woodwork Company uses return on investment and economic value added as performance evaluation measures for its division managers. The company's weighted-average cost of capital is 10 percent. Assume a tax rate of 20 percent. Financial data for the company's three divisions follow. (All foreign cur- rencies have been converted to U.S. dollars.)
|
|
U.S. Division
|
Asia Division
|
Europe Division
|
|
Sales
|
$300,000
|
$375,000
|
$450,000
|
|
Operating
|
25,500
|
28,000
|
29,500
|
|
Assets
|
150,000
|
125,000
|
175,000
|
|
Current Liabilities
|
10,000
|
5,000
|
15,000
|
a. Compute the return on investment for each division.
b. Compute the economic value added amount for each division.
c. Which division's manager is performing the best using ROI? Which division's manager is performing the best using economic value added? Explain your results.