Media Company provides education and training services and operates three divisions Print, Industrial

and E-Services. Division managers are evaluated based on the divisions return on investment, and

historically, the E-Services division has consistently outperformed the other two divisions. Medias

senior management team has recently discovered that the E-Services 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 evaluation 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.

Required:

1. Calculate the return on investment, residual income, and EVA for each division.

2. Comment on the expected results of switching performance evaluation method to

either residual income or EVA. More specifically, is one better than the other and why?

Should the switch be made? Why or why not? (Hint: think about how similar and

different the divisions are in areas such as size, what they do, etc.)