Briefly discuss which division appears most successful

Reference no: EM13902700

ROI and EVA. Minnesota, Inc., has the following data available for two of its divisions for last year:

	Division X	Division Z
Sales	$200,000	$500,000
Contribution Margin	80,000	220,000
Operating Income.	50,000	90,000
Average Operating Assets	180,000	360,000
Average Current Liabilities	30,000	50,000
Weighted Average Cost of Capital	12%	12%

The tax rate for Minnesota, Inc., is 40 percent.

a. Compute the following for each division:

(1) Sales margin

(2) ROI

(3) EVA

b. Briefly discuss which division appears most successful and why.

c. Assume a prospective project for Division X has operating income of $10,000, average operating assets of $60,000, average current liabilities of $4,000, and has a positive net present value. Assume the manager of Division X is evaluated based on ROI for merit pay and promotion. Would that manager want to go ahead with this prospective project? Would your answer change if the manager were evaluated based on EVA? If so, how and why would your answer change?

Reference no: EM13902700

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