Performance Evaluation and Decentralization Assignment

For this assignment, you will be calculating return on investment, margin, turnover, residual income, and economic value added ratios for two divisions of the same company.

Directions: Complete the following calculations in an Excel file. Be sure to show and label your work for full credit.

A company has two divisions with the following information:

Division 1

Sales:	2,000,000
Operating Income:	400,000
Assets Jan. 1:	4,000,000
Assets Dec. 31:	4,500,000

Division 2

Sales:	1,000,000
Operating Income:	300,000
Assets Jan. 1:	2,000,000
Assets Dec. 31:	2,200,000

The Minimum required rate of return for the company for all of its divisions is 30% and its cost of capital is 15%. The company has an income tax rate of 40%. Calculate the following ratios for both divisions:

Return on Investment

Margin

Turnover

Residual income

Economic Value Added