Exercise 25.4 (Algo) 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 11 percent Division A Division B
Total assets $ 6,220,000 $ 8,530,000 Current liabilities $ 650,000 $ 1,850,000 After-tax operating income $ 1.060,000 $ 1,182,100 ROT 21% 13% 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. c. Suppose the manager of Division A was offered a one-year project that would increase her investment base by $340,000 and Increase her divisional operating income by $34.000 Would she be motivated to invest in this project?