Vargas,Inc

question 61

Essay

Vargas,Inc.is just starting up.The management team has decided from the beginning that decentralization was the preferred organizational style and has made this clear in all interviews and discussions with potential employees.Mr.Ross,the CEO,is unsure about the best way to evaluate his division managers.He has heard the terms return on investment,residual income,economic value added,and flexible budgets but wants to know the pros and cons of each.Required:
Briefly describe ROI,residual income,EVA,and other approaches to performance evaluation.Discuss,where appropriate,how to calculate the measure and problem areas in the development of some of the numbers.

---

Definitions:

Sales Outlook

A forecast or projection of future sales performance based on current market trends, data analysis, and sales history.

Interest Rate

The percentage at which interest is charged or paid on borrowed or saved money.

Expected Profit Rate

The forecasted return on an investment over a specified period, taking into account both potential gains and losses.

Non Oil

Pertaining to economic sectors or industries that are not related to the extraction or processing of oil.