Ashton Corporation recently announced a bonus plan to reward the

Ashton Corporation recently announced a bonus plan to reward the manager of its most profitable division. The three divisional managers are to decide which performance measure will be used to evaluate profitability. Ashton Corporation requires a 10% minimum return on investment.

The following information is available for the year just ended.


Ashton Corporation recently announced a bonus plan to reward the



Required
a. Based on return on investment, which division performed the best?
b. Based on residual income, which division performed the best?
c. Assume that Ashton’s weighted-average cost of capital is 6% and its tax rate is 20%.
Based on economic value added, which division performed the best?
d. What measure will the division managers select? What should the upper management of Ashton Corporationdo?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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...

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