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

	North Division			South Division
Division operating profit	$	7,955,000		$	36,630,000
Division investment		43,000,000			333,000,000

The cost of capital for the company is 7 percent. Ignore taxes.

Required:

a-1. Calculate the ROI for both North and South divisions.

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

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?

c. Would your evaluation change if the companys cost of capital was 16 percent?

1. When evaluated by ROI?

2. When evaluated by EVA?

ROI Divisions North South % If Solomons measures performance using ROI, which division had the better performance? North O South DA Calculate the EVA for both North and South divisions. (The divisions have no current liabilities.) EVA Divisions North South If Solomons measures performance using economic value added, which division had the better performance? North South Rea R1 Rea 51 Would your evaluation change if the company's cost of capital was 16 percent? When evaluated by ROI? OYes O No Would your evaluation change if the company's cost of capital was 16 percent? When evaluated by EVA? Yes ONO