167) The economic value added concept has attracted considerable attention in recent years. Explain the

attractiveness of this number as a measure of performance.

168) When using the historical cost of assets for calculation of return on investment, is it better to use the gross book

value of the assets or the net book value of the assets? Discuss.

169) John's Mobile Phone Company uses ROI to measure divisional performance. Annual ROI calculations for each

division have traditionally employed the ending amount of invested capital along with annual operating profit

and net revenue. The DuPont method is generally used. The company's Phone Accessories Division had the

following results for the last two years:

2009 ROI = ($2 000 000/$20 000 000) × ($20 000 000/$10 000 000) = 0.20

2010 ROI = ($2 400 000/$25 000 000) × ($25 000 000/$15 000 000) = 0.16

Corporate management was disappointed in the performance of the division for 2014, since it had made an

additional investment in the division that was budgeted for a 23% ROI.

Required:

a. Discuss some factors that may have contributed to the decrease in ROI for 2014.

b. Would there have been any substantial difference if average capital had been used?

 

 

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