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Check m Exercise 25.4 (Algo) ROI versus EVA Measures (LO25-2, LO25-3, LO25-4) Bailey uses ROI to measure the performance of its operating divisions and
Check m Exercise 25.4 (Algo) ROI versus EVA Measures (LO25-2, LO25-3, LO25-4) Bailey uses ROI to measure the performance of its operating divisions and to reward its division managers. A summary of the ar reports from two of Bailey's divisions is shown provided below. The company's weighted-average cost of capital is 12 percent. Division Total assets Current liabilities After-tax operating income ROT Division A $6,240,000 $ 8,510,000 $700,000 $1,080,000 $ 1,850,000 $ 1,214,400 20% 128 a. Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A Division B. c. Suppose the manager of Division A was offered a one-year project that would increase her investment base by $200,000 ar increase her divisional operating income by $24,000. 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. < Prev 6 of 12 Next >
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