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QUESTION 2 Panca Sinar Berhad (PSB) operates in three (3) divisions, Central Division, Eastern Division and Western Division. The management treats Eastern Division and Western

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QUESTION 2 Panca Sinar Berhad (PSB) operates in three (3) divisions, Central Division, Eastern Division and Western Division. The management treats Eastern Division and Western Division as investment centres as they have considerable autonomy in making investment decisions. Data related to divisions for the most recent year is given below: Eastern Central Western Division Division Division Revenues 1,440,000 996,000 571,000 Variable costs 285,000 131,000 152,000 Controllable fixed costs 420,000 324,000 120,000 Allocated fixed costs 246,000 180,000 48,000 Total net assets 6,522,000 5,977,400 5,870,000 It is PSB's policy to measure the performance of its divisions using return on investment (ROI) and economic value added (EVA) measures alongside some other non-financial performance measures. To be fair, the management considers the controllability of the divisional costs in determining the financial performance of its divisions. The weighted average cost of capital of PSB is determined at 8.25% while the corporate tax rate is 25%. Required: a. Compute the ROI and EVA for Eastern Division and Western Division. (5 marks) b. Based on the result in (a) above, comment on the relative performance of the two (2) divisions

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