23-2? IIIJI, Ii]. EVA. Performance Auto Company operates a new car division llthat sells high- performance sports cars) and a perfennance parts division llthat sells performance-improvement parts for family cars]. Some division financial measures for 201? are as follows: New Car Perfmmema Divlsion Pats Division __ _ -_ _-EI- I. Calculate return on investmentllll for each division using operating income as a measure of income m and total assets as a measure of investment. 1 Calculate residual income [Hill for each division using operating income as a measure of income and total assets minus current liabilities as a measure ofinvestment. SHAPTEFI 23 PERFOWANCE MEASUREMEHT. ODMF'ENSA'I'ION, AND MLLTINATIONAL CONSlDEHA'I'IO-NS 3. William Abraham,the new car division manager, argues thatthe performance parts division has 'load- ed up on a lot of short-term debt\" to boost its RI. Calculate an alternative FII for each division that is not sensitive to the amount of short-term debt taken on by the performance parts division. Comment on the result. 4. Performance Auto Company, whose tax rate is 4016. has two sources of funds: long-term debt with a market value of $18,lIl,IlIl at an interest rate of 10% and equity capital with a market value of $12MJIIU and a cost of equitvof 15%. Applying the same weighted-average cost of capital MACE} to each division, calculate EVA for each division. 5. Use your preceding calculationste comment on the relative performance of each division