ROI, RI, EVA®. (D. Solomons, adapted) Agile Transportation has two divisions which are @

treated as profit centres. Consider the following data for the two divisions:

REQUIRED 1. Calculate the return on investment (ROD) using operating income as the measure of income and using total assets as the measure of investment.
2. Agile Transportation has used residual income as a measure of management success, the variable it wants a manager to maximize. Using this criterion, what is the residual income for each division using operating income and total assets if the required rate of return on investment is 12%?
3. Agile Transportation has two sources of funds: long-term debt with a market value of $4,200,000 and an interest rate of 10%, and equity capital with a market value of $4,200,000 at a cost of equity of 14%. Agile Transportation’s income tax rate is 40%. Agile Transportation applies the same weighted-average cost of capital to both divisions, since each division faces similar risks. Calculate the economic value added for each division.
Which of the measures calculated in requirements 1, 2, and 3 would you recommend Agile Transportation use? Why? Explain briefly.LO1

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Railway Connection Division Total Assets $6,000,000 Current Liabilities 1,800,000 Operating Income 900,000 Maritime Connection Division $1,200,000 300,000 240,000