Hannalinn Corporation operates three divisions-Archer, Barrett, and Corvell. Division managers are evaluated based on the division's return on investment, and historically, the Corvell division has consistently outperformed the other two divisions. Hannalinn's senior management team has recently discovered that the Corvell Division manager has chosen not to invest in projects that would have been beneficial to the organization as a whole, and they are concerned that the current practice of evaluating the division managers' performance using return on investment may have contributed to these decisions. Therefore, the senior management team is considering the use of residual income or EVA to evaluate the division managers' performance. The following data is taken from the most recent year of operations.

a. Calculate the return on investment, residual income, and EVA for each division.
b. Comment on the expected results of switching performance evaluation methods to either residual income orEVA.

  • CreatedFebruary 21, 2014
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