Homework SourseThe following data are available for two divisions of Solomo
The following data are available for two divisions of Solomons Company:
The cost of capital for the company is 6 percent. Ignore taxes.
Required:
a-1. Calculate the ROI for both North and South divisions. (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).)
b-1. Calculate the EVA for both North and South divisions. (The divisions have no current liabilities.)
| North Division | South Division | |||||
| Division operating profit | $ | 6,800,000 | $ | 31,350,000 | ||
| Division investment | 40,000,000 | 330,000,000 | ||||
Solution
Calculate ROI :
ROI = Operating profit *100/Investment
Calculate EVA :
| North division | South division | |
| ROI | 6800000*100/40000000 = 17% | 31350000*100/330000000 = 9.5% |
