Reference no: EM131212984
Ashton Corporation recently announced a bonus plan to reward the manager of its most profitable division. The three divisional managers are to decide which performance measure will be used to evaluate profitability. Ashton Corporation requires a 10% minimum return on investment. The following information is available for the year just ended.
Division Gross Book Value of Assets Divisional Operating Income
Bristol $800,000 $94,980
Darden 745,700 91,050
Gregory 441,000 57,500
(a) Calculate return on investment. (Round ROI to 2 decimal places, e.g. 5.12%.) Return on Investment Bristol % Darden % Gregory % Which division performed the best? DardenGregoryBristol
(b) Calculate residual income. (If the amount is negative then enter with a negative sign preceding the number e.g. -5,125 or parenthesis. e.g. (5,125).)
Residual Income
Bristol $
Darden $
Gregory $
Which division performed the best? Gregory,Bristol, Darden
(c) Assume that Ashton’s weighted-average cost of capital is 6% and its tax rate is 24%. Calculate economic value added. (If the amount is negative then enter with a negative sign preceding the number e.g. -5,125 or parenthesis. e.g. (5,125).)
Economic Value Added
Bristol $
Darden $
Gregory $
Which division performed the best? Gregory, Bristol, Darden.
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