Northland Rail operates as two profit centres: (1) transportation options for customers travelling in northern Ontario (north track division), and (2) business from southbound travel (south track division). Consider the following data for the two geographical divisions of Northland Rail.

Required:
1. Calculate the return on investment (ROI) for each division using operating income as the measure of income and using total assets as the measure of investment.
2. Northland Rail has used residual income as a measure of management success, the variable it wants a manager to maximize. Using this criterion, what is the residual income for each division using operating income and total assets if the required rate of return on investment is 12 percent?
3. Northland Rail is considering the use of EVA as a measure of management success. Compute the EVA for each division, assuming the company has a 10 percent cost of capital.
4. Which of the measures calculated in Requirements 1, 2, and 3 would you recommend Northland Rail use and why? Explain briefly.

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South Track North Track Total assets Current liabilities Operating income After-tax income Total capital employed $1,000,000 S5,000,000 1,500,000 200,000 130,000 750,000 487,500 3,500,000 750,000