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Bailey uses ROI to measure the performance of its operating divisions and to reward its division managers. A summary of the annual reports from
Bailey uses ROI to measure the performance of its operating divisions and to reward its division managers. A summary of the annual reports from two of Bailey's divisions is shown provided below. The company's weighted-average cost of capital is 12 percent. Total assets Current liabilities Division A $ 6,360,000 Division B $ 8,390,000 $ 800,000 After-tax operating income ROI $ 1,120,000 $ 1,950,000 $ 1,225,600 20% 15% a. Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and Division B. c. Suppose the manager of Division A was offered a one-year project that would increase her investment base by $350,000 and increase her divisional operating income by $35,000. Would she be motivated to invest in this project? Complete this question by entering your answers in the tabs below. Required A Required B Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and Division B. EVA for Division A EVA for Division B
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