As the CEO of Middling Hardware Company, you examined the following measures of the performance of three divisions (in thousands of dollars):

1. Calculate for each division the rate of return on net assets and the economic profit based on historical cost and on replacement cost. For purposes of calculating economic profit, use 10% as the cost of capital.

2. Rank the performance of each division under each of the four different measures computed in number 1.

3. What do these measures indicate about the performance of the divisions? Of the division managers? Which measure do you prefer?Why?

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Average Net Assets Based On Operating Income Based On* Historical Cost Replacement Cost Division Tools Appliances Lighting The differences in operating income between historical and replacement cost are attributablc to the differences in Historical Cost $15,000 44,000 27,000 Replacement Cost $16,000 55,000 48,000 $2,600 6,750 5,000 $2,500 6,150 3,900 deprcciation expenses.