What, if anything, should Randall do now about his investment center approach?
Recommendations:
-
Sales should be reported by division not allocated.-
Change the current allocation of corporate-office assets to a system that moreaccurately measures the actual use of administrative expenses by each division.-
Run Professional services division as a profit center.-
Calculate ROA using book value of assets when comparing Consumer and IndustrialProducts divisions. This will stop the current distortion and prevent that managersstart keeping old equipment around for the sole purpose of increasing their ROA.-
Use EVA, in addition to ROA, to evaluate the approval of new products/projects.-
When calculating EVA