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Performance evaluation system; ratios, ROI, EVA, turnover

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AP 12 - 18

How would the divisions be ranked (from best to worst performance) if the evaluation were based on net income
Net income Rank
Division A \$102,000 3 (Worst)
Division B \$1,040,000 1 (Best)
Division C \$750,000 2

How would the divisions be ranked (from best to worst performance) if the evaluation were based on ROI
ROI Rank
Division A 20.00% =Net income/total assets 1
Division B 9.81% 3
Division C 12.42% 2

How would the divisions be ranked (from best to worst performance) if the evaluation were based on residual income?
Residual Income Rank
Division A \$53,550 =income-(total assets*required rate of return) 1 (Best)
Division B -\$232,000 3 (Worst)
Division C -\$198,280 2

P 12 - 6

Compute ROI for both years
ROI for 2011 7.7778% =net income/total assets
ROI for 2012 8.7719%

Break ROI down into profit margin and investment turnover.
2011 2012
Profit margin 5.8333% =net income/sales 5.1429%
Investment turnover 1.3333 =sales/total assets 1.7057

AP 12 - 7

Calculate the ROI for both subsidiaries.
Hazardous Waste 13.02% =net income/total assets
Residential waste 8.81%

Calculate EVA (Economic value added) for both subsidiaries. Note that since no adjustments for (accounting distortions" are being made, EVA is equivalent to residual income.
Hazardous Waste \$3,000
Residential waste -\$3,614,000

Which subsidiary has added the most to shareholder value in the last year?

Hazardous waste

Based on the limited information, which subsidiary is the best candidate for expansion?

Hazardous waste

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