ROl computations with a capital charge. The following information relates to the operating performance of three divisions of Brazil.com., for last year.

a. Compute the rate of return on investment (ROD of each division for last year.

b. Assume that the firm levies a charge on each division for the use of capital. The charge is 8 percent on investment, and the accounting system deducts it in measuring divisional net income. Recalculate ROl using divisional net income after deduction of t he use-of-capital charge in the numerator.

c. Which of these two measures do you think gives the better indication of operating performance? Explain your reasoning.

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Operating Profit. Investment Local Division National Division $ 500.000 5.000.000 $3,000,000 9,000,000 International Division $ 4,500,000 18,000,000