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Superior Autos operates a new car division (that sells high-performance sports cars) and a performance parts division (that sells performance-improvement parts for family cars). Some
Superior Autos operates a new car division (that sells high-performance sports cars) and a performance parts division (that sells performance-improvement parts for family cars). Some division financial measures for 2017 are as follows: ... Home Insert A 1 2 Total assets 3 Current liabilities 4 4 Operating income 5 Required rate of return Page Layout Formulas Data B C New Car Performance Division Parts Division $33,000,000 $28,500,000 $ 6,600,000 $ 8,400,000 $ 2,475,000 $ 2,565,000 12% 12% Required: a. Calculate return on investment (ROI) for each division using operating income as a measure of income and total assets as a measure of investment. (3 marks) b. Calculate residual income (RI) for each division using operating income as a measure of income and total assets minus current liabilities as a measure of investment. (4 marks) C. Assuming a 10% weighted average cost of capital for both divisions, calculate the Economic Value Added (EVA) for both divisions. Superior autos is in 25% tax bracket. (5 marks) d. Use your preceding calculations to comment on the relative performance of each division. Which measu.re is superior of these three measures? Why
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