National Can Company has three divisions, Eastern, Midwestern, and Western. Because of very different accounting methods and inflation rates in different countries it is considering multiple evaluation measures. Information gathered about the divisions for the year just ended follows:
‪

The company is currently using a required rate of return of 15 percent.
Required:
a. Compute the ROI using both book value and current value for all divisions. Round to three decimal places.
b. Compute residual income using book value and current value for all divisions.
c. Does book value or current value provide the better basis for performance evaluation? Why? Which division is the most successful?

Question

National Can Company has three divisions, Eastern, Midwestern, and Western. Because of very different accounting methods and inflation rates in different countries it is considering multiple evaluation measures. Information gathered about the divisions for the year just ended follows:
‪
  
The company is currently using a required rate of return of 15 percent.
Required:
a. Compute the ROI using both book value and current value for all divisions. Round to three decimal places.
b. Compute residual income using book value and current value for all divisions.
c. Does book value or current value provide the better basis for performance evaluation? Why? Which division is the most successful?

Quizplus · Accepted Answer

The Answer of National Can Company has three divisions, Eastern, Midwestern, and Western. Because of very different accounting methods and inflation rates in different countries it is considering multiple evaluation measures. Information gathered about the divisions for the year just ended follows:
‪
  
The company is currently using a required rate of return of 15 percent.
Required:
a. Compute the ROI using both book value and current value for all divisions. Round to three decimal places.
b. Compute residual income using book value and current value for all divisions.
c. Does book value or current value provide the better basis for performance evaluation? Why? Which division is the most successful?

National Can Company Has Three Divisions, Eastern, Midwestern, and Western