Requirements 1. Calculate return on investment (ROI) for each division using operating income as a measure of income and total assets as a measure of investment. 2. Calculate residual income (RI) for each division using operating income as a measure of income and total assets minus current liabilities as a measure of investment. 3. William Abraham, the new car division manager, argues that the performance parts division has "loaded up on a lot of short-term debt" to boost its RI. Calculate an alternative RI for each division that is not sensitive to the amount of short-term debt taken on by the performance parts division. Comment on the result. 4. A Plus Auto Company, whose tax rate is 30%, has two sources of funds: long- term debt with a market value of $17,000,000 at an interest rate of 10%, and equity capital with a market value of $14,000,000 and a cost of equity of 16%. Applying the same weighted-average cost of capital (WACC) to each division, calculate EVA for each division. 5. Use your preceding calculations to comment on the relative performance of each division. A Plus Auto Company operates a new car division (that sells high-performance sports cars) and a performance parts division (that sells performance-improvement parts for family cars). Some division financial measures for 2020 are as follows: (Click the icon to view the data.) Read the requirements. Requirement 1. Calculate return on investment (ROI) for each division using operating income as a measure of income and total assets as a measure of investment. (Enter the ROI as a percent rounded to one decimal place in the format X.X%.) New Car Division ROI % Performance Parts Division % Data Table 1 2 Total assets A 3 Current liabilities 4 Operating income 5 Required rate of return B New Car Division C Performance Parts Division $ 40,000,000 $ 31,562,500 $ 7,000,000 $ 8,700,000 $ 2,600,000 $ 2,525,000 13% 13%