Question
The following data are available for two divisions of Solomons Company: North Division South Division Division operating profit $ 8,695,000 $ 45,780,000 Division investment 37,000,000
The following data are available for two divisions of Solomons Company:
| North Division | South Division | |||||
| Division operating profit | $ | 8,695,000 | $ | 45,780,000 | ||
| Division investment | 37,000,000 | 327,000,000 | ||||
The cost of capital for the company is 8 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 19.0 percent?
1. When evaluated by ROI?
| Yes | |
| No |
2. When evaluated by EVA?
| Yes | |
| No |
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