Telum Ltd manufactures electronic devices and competes on the basis of quality and leading-edge designs. The company has $1,750,000 invested in assets in its Mobile Phone Division. After-tax operating profit from sales of mobile phones this year is $325,000. The Tablet Division has $6,000,000 invested in assets and an after-tax operating profit this year of $1,050,000. Income for the Mobile Phone Division has grown steadily over the past few years. The weighted-average cost of capital for Telum Ltd is 9% and the previous periods after-tax return on investment for each division was 13%. The CEO of Telum Ltd has told the manager of each division that the division that performs best this year will get a bonus.

2. The CEO of Telum LTd has recently heard of another measure similar to residual income called EVA. The CEO has the accountant calculate EVA - adjusted incomes of the Mobile Phone and Tablet Divisions, and finds that the adjusted after-tax operating profits are $700,000 and $1,300,000, respectively. Also, the Mobile Phone Division has $525,000 of current liabilities, whereas the Tablet Division has only $105,000 of current liabilities. Using the above information,

1. Calculate EVA for each division

(Note: Use net assets as capital employed)

(4 marks)

2. Briefly discuss which divisional manager will get the bonus.

(2 marks)

3. What non-financial measures could Telum Ltd use to evaluate divisional performances? Suggest any three non-financial measures. (3 marks)