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What is the economic value added for two divisions

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Reference no: EM131709919

Question - The following data are available for two divisions of Solomons Company:

North Division South Division

Division operating profit $ 7,000,000 $ 39,000,000

Division investment 28,000,000 260,000,000

The cost of capital for the company is 10 percent. Ignore taxes.

Requirement 1: (a) What is the ROI for two divisions?

(b) If Solomons measures performance using ROI, which division hadthe better performance?

Requirement 2: (a) What is the economic value added (EVA) for two divisions?

(b) If Solomons measures performance using economic value added, which division had the better performance? (The divisions have no currentliabilities.)

Requirement 3: (a) What is the economic value added (EVA) for two divisions if thecompany's cost of capital were 20 percent? (Negative amounts shouldbe indicated by a minus sign. Omit the "$" sign in yourresponse.)

Reference no: EM131709919

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