Question
Ready Rentals Ltd consists of two divisions. The Equipment Rental division rents machinery, such as cement mixers and scissor lifts, to building contractors. The Truck
Ready Rentals Ltd consists of two divisions. The Equipment Rental division rents machinery, such as cement mixers and scissor lifts, to building contractors. The Truck Rental Division rents forklift trucks and removal trucks. The financial results for the two divisions for the most recent year are as follows:
Equipment Rental division Truck Rental Division
Operating profit after tax $ 45 000 $ 110 000
Total assets 750 000 3 000 000
Current liabilities 80 000 250 000
Ready Rentals obtains its financing from long-term debt and shares, and the weighted average cost of capital is estimated to be 6 percent. To calculate ROI, invested capital is defined as total assets less current liabilities.
Required:
(A) Calculate the ROI for the two divisions.
(B) Calculate the EVA for each division.
(C) Which division has performed better? Explain your answer.
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
A To calculate the Return on Investment ROI for each division you can use the formula ROI Operating Profit after Tax Invested Capital 100 Equipment Re...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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