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Ayayai Corporation operates three divisions-Archer, Barrett, and Corvell. Division managers are evaluated based on the division's return on investment, and historically, the Corvell division
Ayayai Corporation operates three divisions-Archer, Barrett, and Corvell. Division managers are evaluated based on the division's return on investment, and historically, the Corvell division has consistently outperformed the other two divisions. Ayayai's senior management team has recently discovered that the Corvell Division manager has chosen not to invest in projects that would have been beneficial to the organization as a whole, and they are concerned that the current practice of evaluating the division managers' performance using return on investment may have contributed to these decisions. Therefore, the senior management team is considering the use of residual income or EVA to evaluate the division managers' performance. The following data is taken from the most recent year of operations. Assets Archer $29,931,000 Barrett Corvell $19,980,000 $7,998,000 Current liabilities 2,255,100 753,500 333,900 Operating income 4,190,340 3,196,800 1,519,620 Minimum rate of return 12% 12% 12% Weighted average cost of capital 8% 8% 8% Tax rate 30% 30% 30%
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