Question: Please help with Problem 1 (especially with capital asset turnover)! Media Company provides education and training services and operates three divisions - Print, Industrial and

Please help with Problem 1 (especially with capital asset turnover)!
Please help with Problem 1 (especially with capital asset turnover)! Media Company

Media Company provides education and training services and operates three divisions - Print, Industrial and E-Services. Division managers are evaluated based on the division's return on investment, and historically, the E-Services division has consistently outperformed the other two divisions. Media's senior management team has recently discovered that the E-Services Division manager has chosen not to invest in projects that would have been beneficial to the organization as a whole, and they are concerned that the current practice of evaluation the division managers' performance using return on investment may have contributed to these decisions. Therefore, the senior management team is considering the use of residual income to evaluate the division managers' performance. The following data is taken from the most recent year of operations. Print Industrial E-Services Assets $28,000,000 $22,000,000 $8,000,000 Current liabilities 4,500,000 570,000 450,000 Sales 10,000,000 12,500,000 9,000,000 Operating Income 5,000,000 3,400,000 1,750,000 Minimum rate of return 16% 16% 16% 10% Weighted Average Cost of Capital 10% 10% 28% Tax Rate 28% 28% Required: 1. Calculate the sales margin, capital asset turnover, return on investment, and residual income for each division. 2. Comment on the expected results of switching performance evaluation method to residual income. Should the switch be made? Why or why not? (Hint: think about how similar and different the divisions are in areas such as size, what they do, etc.)

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