Question
Sheffield Corporation operates three divisions-Archer, Barrett, and Corvell. Division managers are evaluated based on the division's return on investment, and historically, the Corvell division has
Sheffield Corporation operates three divisions-Archer, Barrett, and Corvell. Division managers are evaluated based on the division's return on investment, and historically, the Corvell division has consistently outperformed the other two divisions. Sheffield's 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. Assets Current liabilities Archer $29,965,000 Barrett Corvell $19,970,000 $7,995,900 2,256,700 752,900 334,700 Operating income 4,494,750 3,195,200 1,599,180 Minimum rate of return 12% 12% 12% Weighted average cost of capital Tax rate 8% 8% 8% 30% 30% 30% (a) Calculate the return on investment, residual income, and EVA for each division. (Round ROI answers to O decimal places, e.g. 15% and all other answers to O 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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