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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 two
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 11 percent. Total assets Current liabilities After-tax operating income ROI Division A $ 6,280,000 $ 700,000 $ 1,080,000 26% Division B $ 8,470,000 $ 1,900,000 $ 1,188,900 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 $200,000 and increase her divisional operating income by $32,000. Would she be motivated to invest in this project? Answer is complete but not entirely correct. 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 $ 466,200 $ 531,900 X Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Suppose the manager of Division A was offered a one-year project that would increase her investment base by $200,000 and increase her divisional operating income by $32,000. Would she be motivated to invest in this project? Would she be motivated to invest in this project? Yes
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