Activity #3 - Performance evaluation measures (ROI, RI, EVA)

Learning outcomeLO11.3 Investment centre performance evaluation measures (SLO4)Time20 minutesActivity

14.42 Du Pont ROI, RI and EVA

Global Enterprises is a division of an international conglomerate. The following information relates to its performance.

Target profit margin12%Target asset turnover1.34 timesCharge for capital14%Weighted average cost of capital12.40%Income tax rate30%Investment$22,600,000Total assets$28,050,000Current liabilities$820,000Sales$23,200,000Variable costs$8,960,000Fixed costs$10,460,000Allocated common and corporate costs$1,636,000

Required

Calculate the divisional margin for the year.

Calculate the Du Pont ROI and evaluate the performance of Global Enterprises in relation to the expected performance.

Calculate the RI.

Calculate the EVA.

Why are the RI and the EVA different?

Discuss the appropriateness of the use of ROI, RI and EVA as performance measures.

Resources In groups or breakout rooms calculate the answers. Each group will share and explain one part of the answer.