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Compute the eva for division a and division b

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Reference no: EM132694087

Bailey uses ROI to measure the performance of its operating divisions and to reward its division managers. A summary of the annual reports from two of Bailey's divisions is shown provided below. The company's weighted-average cost of capital is 12 percent.
                                    Division A                  Division B

Total assets            $6,180,000                  $8,570,000

Current liabilities         $650,000                    $1,850,000

After-tax operating income $1,060,000           $1,202,800

ROI                                 22%                                14%

Problem 1: Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and Division B.

Problem 2: Suppose the manager of Division A was offered a one-year project that would increase her investment base by $300,000 and increase her divisional operating income by $39,000. Would she be motivated to invest in this project?

Reference no: EM132694087

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