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The following data are available for two divisions of Solomons Company: North Division South Division Division operating profit $ 7,175,000 $ 33,100,000 Division investment 41,000,000

The following data are available for two divisions of Solomons Company:

North Division South Division
Division operating profit $ 7,175,000 $ 33,100,000
Division investment 41,000,000 331,000,000

The cost of capital for the company is 6 percent. Ignore taxes.

Required:

a-1. Calculate the ROI for both North and South divisions. (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).)

a-2. If Solomons measures performance using ROI, which division had the better performance?

North
South

b-1. Calculate the EVA for both North and South divisions. (The divisions have no current liabilities.)

b-2. If Solomons measures performance using economic value added, which division had the better performance?

North
South

c. Would your evaluation change if the companys cost of capital were 15.0 percent?

1. When evaluated by ROI?

Yes
No

2. When evaluated by EVA?

Yes
No

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