Question
Sarasota Corporation operates three divisionsArcher, Barrett, and Corvell. Division managers are evaluated based on the divisions return on investment, and historically, the Corvell division has
Sarasota Corporation operates three divisionsArcher, Barrett, and Corvell. Division managers are evaluated based on the divisions return on investment, and historically, the Corvell division has consistently outperformed the other two divisions. Sarasotas senior management team has recently discovered that the Corvell 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 evaluating 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.
Archer Barrett Corvell Assets $29,999,000 $19,952,000 $7,992,000 Current liabilities 2,254,100 751,000 334,300 Operating income 4,199,860 3,391,840 1,598,400 Minimum rate of return 13% 13% 13% Weighted average cost of capital 8% 8% 8% Tax rate 30% 30% 30%
(a) Calculate the return on investment, residual income, and EVA for each division. (Round ROI answers to 0 decimal places, e.g. 15% and all other answers to 0 decimal places, e.g. 5,215. If the amount is negative then enter with a negative sign preceding the number, e.g. -5,125 or parentheses, e.g. (5,125).)
Return on Investment Archer % Barrett % Corvell %
Residual Income Archer $ Barrett $ Corvell $
EVA Archer $ Barrett $ Corvell $
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