Ashton Corporation recently announced a bonus plan to reward the manager of its most profitable division. The three divisional managers are to decide which performance measure will be used to evaluate profitability. Ashton Corporation requires a 10% minimum return on investment.
The following information is available for the year just ended.

a. Based on return on investment, which division performed the best?
b. Based on residual income, which division performed the best?
c. Assume that Ashton’s weighted-average cost of capital is 6% and its tax rate is 20%.
Based on economic value added, which division performed the best?
d. What measure will the division managers select? What should the upper management of Ashton Corporationdo?

  • CreatedFebruary 21, 2014
  • Files Included
Post your question