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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

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 9:37 pm ad1c9bdddf>
    https://brainmass.com/business/management-accounting/performance-evaluation-system-ratios-roi-eva-turnover-397478

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