Sapsora Company uses ROI to measure the performance of its operating divisions and to reward division managers.

Question:

Sapsora Company uses ROI to measure the performance of its operating divisions and to reward division managers. A summary of the annual reports from two divisions is shown below. The company’s weighted-average cost of capital is 15 percent.


Sapsora Company uses ROI to measure the performance of its


a. Which division is more profitable?
b. Would EVA more clearly show the relative contribution of the two divisions to the company as a whole? Show the computations.
c. Suppose the manager of Division A was offered a one-year project that would increase his investment base by $100,000 and show a profit of $17,000. Would the manager choose to invest in the newproject?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Financial and Managerial Accounting the basis for business decisions

ISBN: 978-0078111044

16th edition

Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello

Question Posted: