Solution-Calculate the return on investment

Calculate the return on investment

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Question - Ayayai Corporation operates three divisions-Archer, Barrett, and Corvell. Division managers are evaluated based on the division's return on investment, and historically, the Corvell division has consistently outperformed the other two divisions. Ayayai's senior management team has recently discovered that the Corvell Division manager has chosen not to invest in projects that would have been beneficial to the organization as a whole, and they are concerned that the current practice of evaluating the division managers' performance using return on investment may have contributed to these decisions. Therefore, the senior management team is considering the use of residual income or EVA to evaluate the division managers' performance. The following data is taken from the most recent year of operations.

	Archer	Barrett	Corvell
Assets	$29,900,000	$19,900,000	$7,990,000
Current liabilities	2,250,000	750,000	325,000
Operating income	4,186,000	3,184,000	1,518,100
Minimum rate of return	12%	12%	12%
Weighted average cost of capital	8%	8%	8%
Tax rate	30%	30%	30%

Required - Calculate the return on investment?

Reference no: EM133090499

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Calculate the return on investment

Reference no: EM133090499

Reference no: EM133090499

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