Jean Cooper Cosmetics (JCC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year’s operations follows. The information includes the value of intangible assets including research and development, patents, and other innovations that are not included on JCC’s balance sheet. Were these intangibles to be included in the financial statements (as they are for EVA ® ), the increase in the balance sheet and the increase in after-tax operating income are as given below.

				Intangibles'
	Operating	Average	Value of	Effect on
Division	Income	Total Assets	Intangibles	Income
Soap Products	$3,250,000	$60,000,000	$1,500,000	$1,000,000
Skin Lotions	2,750,000	33,000,000	8,000,000	6,000,000
Hair Products	5,000,000	55,000,000	1,000,000	700,000
Minimum desired rate of return		5.00%
Cost of capital		4.00%

Required
1. Calculate the ROI for each division.
2. Calculate the residual income (RI) for each division.
3. Calculate EVA ® for each division and comment on your answers for ROI, RI, and EVA ®.

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The three methods produce somewhat different results. Under ROI, the skin lotion and hair products divisions have similar perform ance. Under residual income (RI the hair products division becomes the most profitable, in part because it is the largest division. Using EVA 8, the skin lotion division is the most profitable. Note that the skin lotions division has the largest amount of intangible assets, an d for this reason has the highest performance under EVA®.