Evaluate contribution of each division to value of company

Reference no: EM131487941

Question: (Economic Value Added) Star Inc. has two divisions, A and B, and would like to evaluate the contribution of each division to the value of the company as a whole. Star Inc. traditionally uses operating return on investment to evaluate the performance of its divisions. Last year, the operating return on assets was 20 percent for division A and 18 percent for division B. The cost of capital is the same for both divisions and equals to 15 percent. Total assets of division A are $5,600,000 and in the case of division B it is $9,333,400. Use operating return on investment and economic value added to assess the relative contribution of both divisions to the company's value creation. Discuss your findings.

Reference no: EM131487941

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