Exercise $14-31($Algo$)$ Compare Alternative Measures of Division Performance $($LO $14-2,4)$

The following data are available for two divisions of Ryan Enterprises:

$$Alpha DivisionBeta DivisionDivision operating profit$ $7,260,000$$ $1,140,000$Division investment$32,060,0003,060,000$

The cost of capital for the company is $7$ percent. Ignore taxes.

Required:

a$-1.$ Calculate the ROI for both Alpha and Beta divisions.

a$-2.$ If Ryan measures performance using ROI, which division had the better performance?

b$-1.$ Calculate the EVA for both Alpha and Beta divisions. $($The divisions have no current liabilities.$)$

b$-2.$ If Ryan measures performance using economic value added, which division had the better performance?

c$.$ Would your evaluation change if the company$$s cost of capital was $10$ percent,

when evaluated by ROI?

when evaluated by EVA?