Following is information for the Krishnan Company's three business divisions:
Division A Division B Division C
Pretax operating income $800,000 $400,000 $600,000
Current assets 80,000 60,000 80,000
Long-term assets 3,200,000 2,600,000 1,600,000
Current liabilities 400,000 200,000 300,000
Krishnan's tax rate for the divisions is 30%, and its after-tax weighted-average cost of capital (WACC)for each segment is 12%. The WACC is also used as a required rate of return.
a)Determine the division with the highest ROI. Show your calculations.
b)Determine the division with the highest residual income. Show your calculations.
c)Determine the segment with the highest EVA. Show your calculations.
d)Compare and contrast these three performance measures and their influence on managers.
e)Why is it better to use multiple measures for evaluating manager performance rather than a single measure such as ROI or EVA?

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The Answer of Following is information for the Krishnan Company's three business divisions:
Division A Division B Division C
Pretax operating income $800,000 $400,000 $600,000
Current assets 80,000 60,000 80,000
Long-term assets 3,200,000 2,600,000 1,600,000
Current liabilities 400,000 200,000 300,000
Krishnan's tax rate for the divisions is 30%, and its after-tax weighted-average cost of capital (WACC)for each segment is 12%. The WACC is also used as a required rate of return.
a)Determine the division with the highest ROI. Show your calculations.
b)Determine the division with the highest residual income. Show your calculations.
c)Determine the segment with the highest EVA. Show your calculations.
d)Compare and contrast these three performance measures and their influence on managers.
e)Why is it better to use multiple measures for evaluating manager performance rather than a single measure such as ROI or EVA?

Following Is Information for the Krishnan Company's Three Business Divisions