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Sapsora Company uses ROI to measure the performance of its operating divisions and to reward division managers. A summary of the annual reports from
Sapsora Company uses ROI to measure the performance of its operating divisions and to reward division managers. A summary of the annual reports from two divisions is shown as follows. The company's weighted-average cost of capital is 10 percent. Division B Total assets Division A $ 6,260,000 $ 8,490,000 Current liabilities $ 700,000 After-tax operating income $ 1,080,000 $ 1,900,000 $ 1,183,000 ROI 24% 14% a. Which division is more profitable in absolute dollars? b. Compute the EVA for Division A and Division B. c. Suppose the manager of Division A was offered a one-year project that would increase his investment base by $200,000 and show a profit of $28,000. Would the manager be motivated to invest in the new project? Complete this question by entering your answers in the tabs below. Required A Required B Required C Which division is more profitable in absolute dollars? Which division is more profitable?
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