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As Financial Analyst of your company, you are evaluating the performance of three divisions of your company with the following information Division 1 Division 2
As Financial Analyst of your company, you are evaluating the performance of three divisions of your company with the following information Division 1 Division 2 Division 3 Net Income $215 million $400 million $125 million Total capital employed $2,100 million $2,600 million $750 million Divisional cost of capital 0.14 0.11 0.12 (a) Calculate ROI (Return on Investment =Net Income Total Capital: %) and EVA (Economic Value Added:S) for each division and rank the three divisions' performance based on ROI and EVA in the following table. Explain why the performance rankings by ROI and EVA differ: Division 1 Division 2 Division 3 ROI (%) ROI Ranking EVA ($) EVA Ranking (b)If a division has a positive ROI but a negative EVA, what does that mean? Also, explain why that would happen for that division, if any, using the information given above
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