Solution-Which method of performance evaluation is more

Which method of performance evaluation is more useful

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Reference no: EM132561446

LUSAKA Plc has two divisions, GAMMA and OMEGA, whose respective performances are under review. Division GAMMA is currently earning a profit of K35,000 and has net assets of K150,000. Division OMEGA currently earns a profit of K70,000 with net assets of K325,000. LUSAKA Plc has a current cost of capital of 15%.

Required:

Question (a) Explain the difference between a profit centre and an investment centre of an organisation.

Question (b) Using the information above, calculate the return on investment and residual income figures for the two divisions under review and comment on your results.

Question (c) Explain which method of performance evaluation (i.e. return on investment or residual income) is more useful when comparing divisional performance.

Reference no: EM132561446

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Which method of performance evaluation is more useful

Reference no: EM132561446

Reference no: EM132561446

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