Zara Ltd consists of two divisions. The financial results for the two divisions for the most recent years are as follows:

Hand Bags $

Shoes $

Operating profit after tax

23 000

56 000

Total assets

380 000

1 500 000

Current liabilities

41 000

125 000

Zara Ltd obtains its financing from long-term debt and shares, and the weighted average cost of capital is estimated to be 6 per cent. To calculate ROI, invested capital is defined as total assets less current liabilities

Required:

1. Calculate the ROI for the two divisions(4 Marks)

2. Calculate the EVA for each division. Note that Zara Ltd does not make any adjustments to its

NOPAT (Net operating profit after tax)(5 Marks)

3. Which division has performed better? Explain your answer. (6 Marks)