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Bitte Helfen
![PROBLEM 12-7. ROI and EVA LO 2, 3] 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: Hazardous Residential Waste Waste Total assets Noninterest-bearing current liabilities Net income Interest expense Required rate of return Tax rate $15,300,000 3,300,000 1,870,000 1,375,000 $87,000,000 13,200,000 6,600,000 8,030,000 10% 40% 13% 40% REQUIRED 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.](https://d2vlcm61l7u1fs.cloudfront.net/media%2F0ba%2F0ba9c361-5670-4b1d-bffa-3fd30376f197%2FphpMcnXLH.png)
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.
Expert Answer
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.
