(Solved): Exercise 25.4 (Static) ROI versus EVA Measures (LO25-2, LO25-3, LO25-4) Bailey uses ROI to measure t ...

Exercise 25.4 (Static) ROI versus EVA Measures (LO25-2, LO25-3, LO25-4) Bailey uses ROI to measure the performance of its operating divisions and to reward its division managers. A summary of the annual reports from two of Bailey’s divisions is shown provided below. The company’s weighted-average cost of capital is 12 percent.

 

a. Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and Division B.

b. Suppose the manager of Division A was offered a one-year project that would increase her investment base by $500,000 and increase her divisional operating income by $90,000. Would she be motivated to invest in this project?

Exercise 25.4 (Static) ROI versus EVA Measures (LO25-2, LO25-3, LO25-4) Bailey uses ROI to measure the performance of its operating divisions and to reward its division managers. A summary of the annual reports from two of Bailey's divisions is shown provided below. The company's weighted-average cost of capital is 12 percent. a. Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and Division B. b. Suppose the manager of Division A was offered a one-year project that would increase her investment base by \( \$ 500,000 \) and increase her divisional operating income by \( \$ 90,000 \). Would she be motivated to invest in this project? Complete this question by entering your answers in the tabs below. Based on ROI, Division A generates more profit per dollar of invested capital than Division B. Compute the EVA for Division A and Division B.