Singa Hotels operates three hotels in Singapore. The performance of each hotel manager is rewarded based on his/her ability to enhance annual return on investment. Each manager has the potential to be rewarded with an annual cash bonus based on the following scale.

Hotel ROI (annual)	Bonus (as percentage of annual profit)
Under 20%	No bonus
20% to 30%	3%
31% to 40%	5%
41% to 50%	8%
Above 50%	12%

Data relating to each hotel for the financial year-ended 30 June 2020 is contained in the following table.

	Ridges	Marina	Dawson
Annual Sales	$4,100,000	$3,600,000	$11,600,000
Net Profit	$620,000	$900,000	$1,767,000
Current assets	$ 1,200,000	$ 990,000	$ 1,700,000
Non-current assets	1,800,000	2,400,000	4,000,000

REQUIRED:

Part 1

1. Calculate ROI (to 2 decimal place) and manager bonus percentage for each of the three hotels assuming ROI computed based on total assets. (9 marks)
2. Compute the Net profit margin and the Asset turnover and use these ratios to comment on the performance of each hotel based on ROI. (12 marks)
3. Calculate Residual Income (RI) for each of the three hotels assuming a required return of 10%. (6 marks)
4. Comment on the performance of each hotel based on Residual Income (RI) above. State the type of responsibility centre each hotel should be designated. (6 marks)
5. Briefly explain why Residual Income (RI) would be considered a better financial performance measure as compared to ROI. (5 marks)

Part 2

The financial manager at the companys head office seeks your assistance in computing the Economic Value Added (EVA) of two potential investment below.

The details of the two investment are as follows:

Mito Hotel Kalu Hotel

Total assets $5,000,000 $1,000,000

Current liabilities $200,000 $100,000

Adjusted Operating profit $500 000 $300,000

The applicable tax rate is 30% and assume a WACC of 12%.

Required:

Compute the EVA of the two potential investments above and comments on your results.

(12 marks)