ELN Waste Management has a subsidiary that disposes of hazardous waste and a subsidiary that collects and disposes of residential garbage. Information related to the two subsidiaries follows: a. Calculate ROI for both subsidiaries. b. Calculate EVA for both subsidiaries. Note that since no adjustments for accounting distortions are being made, EVA is equivalent to residual income. c. Which subsidiary has added the most to shareholder value in the last year? d. Based on the limited information, which subsidiary is the best candidate for expansion? Explain.
c. hazardous waste subsidiary has added most to the shareholders wealth since only its residual income is positive. residual waste subsidiary has destroyed shareholder wealth since it did not meet the required return criteria.
d. since hazardous waste is generating positive residual income, it alone is a suitable candidate for expansion.