The following information relates to the operating performance of two divisions of Campbell Food International

Company: 1) Soup and Sauces and

2) Beverages.

(All figures are in millions except for WACC)

Sales

Division 1 $1,500

Division 2 $750

Operating Income

Division 1 $200

Division 2 16%

Average Operating Assets

Division 1 $1,250

Division 2 $60

Average Current Liabilities

Division 1 $450

Division 2 $200

16%

16%

The tax rate is 25%.

REQUIRED: (a) Compute each divisions after-tax profit margin.

(b) Compute each divisions after-tax return on investment (ROI).

(c) Comments on the results of the preceding calculations and what would you recommend for the Company to do to improve return on investment (ROI).

(d) Assume a prospective project for the Beverages division has operating income of $7 million, average-operating assets of $100 million, average current liabilities of $40 million, and has a positive net present value. If the Manager of this division were evaluated, based on ROI for bonus and promotion, would he be willing to go ahead with this prospective project? Would your answer change if the Manager were evaluated based on EVA?