In1.

this
Forcase:
each
• Duane division has the highest ROI with the least
division, compute
capital invested which is the best performer among
the
threereturn on
divisions.
sales, the capital
by investedand
• turnover, each the
dollar for two times of revenue
(2.0x Capital Turnover); and
return on
• by reducing expenses relative to sales.
investment (ROI).

2. Which division is
the best performer if
evaluation is based
on ROI? Explain.
3.
• Suppose eachthe amount by which after-tax
Economic profit:
operating
division income > the
is assessed a cost of the capital Division
employed to generate that income.
cost of division
• Louis capitalhasofthe10%highest economic profit in this
oncase
invested capital.
even though it has slightly less ROI compared to Hubert Duane Louis
Compute
Duane. the
• In this case,
economic Louis’ for
profit divisional income exceeds the
Divisional income $180 $84 $216
cost of capital by $36.
each division. Which
division is the best (-) Charge for
performer based on − (0.10 − (0.10 − (0.10
average invested
economic profit? × $2,000) × $600) × $1,800)
capital (10%)
Explain.
(=) Economic
Profit/Residual ($20) $24 $36
Income