Department income totals $200,000,investment in the department is $2,000,000,and the company's cost of capital is 8%.
Required:
a. Calculate the return on investment (ROI).
b. Calculate economic value added.
c. Assume there is a capital project that requires a $200,000 investment for a $18,000 return.Would the department manager be more likely to accept the project if department performance was evaluated using ROI or economic value added? Why?

Question

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The Answer of Department income totals $200,000,investment in the department is $2,000,000,and the company's cost of capital is 8%.
Required:
a. Calculate the return on investment (ROI).
b. Calculate economic value added.
c. Assume there is a capital project that requires a $200,000 investment for a $18,000 return.Would the department manager be more likely to accept the project if department performance was evaluated using ROI or economic value added? Why?

Department Income Totals $200,000,investment in the Department Is $2,000,000,and the Company's