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.

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?

  • CreatedApril 17, 2014
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