SouthCoast Ltd operates a chain of budget seafood restaurants as well as its own fishing fleet. SouthCoast is structured into three divisions: the Eden Division and the Mogo Division, which manage restaurants, and the Fleet Division which operates a fishing fleet.

The company uses return on investment to evaluate the performance of each division. For the purpose of calculating divisional ROI, invested capital is defined as total assets less current liabilities, and divisional operating profit after tax is used. Each division is required to achieve an ROI of at least 10% after tax. The weighted average cost of capital is 9%. The company income tax rate is 30%.

The following data relates to the financial performance for the last year:

	Eden Division	Mogo Division	Fleet Division
Operating profit before tax	$ 215,000	$ 53,000	$ 45,000
Total assets	2,300,000	350,000	980,000
Current liabilities	480,000	120,000	94,000

Two years ago, the Fleet Division replaced most of its assets. The Eden Division is the oldest division and owns all of its assets, while the Mogo Division leases most of its restaurant sites. The lease payments are treated as an expense.

Required:

1. Under what situation is it appropriate to measure invested capital as total assets less current liabilities? (1 mark)

2. Calculate the ROI for each division for last year and compare the performance of the three divisions based on ROI. (2 marks)

3. Is there any other information in the problem that needs to be taken into account when interpreting divisional performance using ROI? (3 marks)

4. Calculate the EVA for each division for last year and compare the performance of the three divisions based on EVA. (2 marks)

5. Outline two strategies managers can use to maximise EVA. (1 mark)