Methven Mining Ltd. is a mining company that mines for iron ore across South Island, New Zealand. The company is structured into three divisions: The Norfolk Division, Southbridge Division, and Fulham Division. Each division operates as a separate standalone business and is designated as an investment center. The company uses return on investment (ROI) to evaluate the performance of each division. To calculate divisional ROI, investment capital is defined as total assets minus current liabilities, and divisional operating profit after tax is used. Each division is required to achieve ROI of at least 10% after tax. To calculate divisional EVA, the weighted average cost of capital of 8% is used. The company income tax rate is 30%. Two years ago, the Fulham Division replaced most of its fleet. The Southbridge Division is the oldest division and owns all its assets, while the Norfolk Division leases most of its assets. The lease payments are treated as an expense.

1. Calculate the return on investment for each division for last year.

2.

i. Which division has the best performance? What factors should be considered when interpreting this performance measure in this situation? Explain.

ii. Is there any other information in the case study that needs to be considered when interpreting divisional performance using ROI? Explain.

3. Calculate the EVA for each division for the last year.

4. Compare (and discuss) the financial performance of each division using both ROI and EVA

5. To make more meaningful comparisons between divisions using ROI and EVA , what three numerical data should be supplied? Explain.

The data below relates to financial performance for the last year