Hazardous Waste Residential Waste Total Assets 13,900,000 70,600,000 Noninterest

Question

                                                                Hazardous Waste             Residential Waste

Total Assets                                                  13,900,000                      70,600,000
Noninterest-bearing current liabilities               3,040,000                      10,400,000
Net Income                                                    1,610,000                         5,940,000
Interest expense                                            1,220,000                         7,320,000
Required rate of return                                     14%                                 14%
Tax rate                                                          30%                                 30%


Calculate ROI for both subsidiaries
_________________% (Hazardous)

__________________% (Residential)


Calculate EVA for both subsidiaries. Since no adjustments for “accounting distortions” are being made, EVA is equivalent to residual income.

$_____________

$_____________

Explanation / Answer

Return on investemnet : for Hazardous waste is =net income / total assets = $1610000 / $1,3900000] = 0.1158 percent =____11.58_% (Hazardous). for Residential waste is net income / total assets = [$5940000/70600000] =0.084percent _______8.4 % (Residential) EVA for Hazardous waste is = [PAT+INTEREST(1-t)]-c* CAPITAL EMPLOYED here capital employed= [ Total assts - current liabilities] = [ 13,900,0000 - 3,040,000 ] =1,08,60000 EVA = [1610000+1220000(1-0.30)-0.14(1,08,60000) =[2464000-1520400] =$943600 EVA for Residential waste is .. = [PAT+INTEREST(1-t)]-c* CAPITAL EMPLOYED here capital employed= [ Total assts - current liabilities] = [70,600,000-10,400,000] =60200000 EVA = [5940000+7320000(1-0.30)-0.14(60200000) =[11064000-8428000] =$2636000 = [$5940000/70600000] =0.084percent _______8.4 % (Residential) EVA for Hazardous waste is = [PAT+INTEREST(1-t)]-c* CAPITAL EMPLOYED here capital employed= [ Total assts - current liabilities] = [ 13,900,0000 - 3,040,000 ] =1,08,60000 EVA = [1610000+1220000(1-0.30)-0.14(1,08,60000) =[2464000-1520400] =$943600 EVA for Residential waste is .. = [PAT+INTEREST(1-t)]-c* CAPITAL EMPLOYED here capital employed= [ Total assts - current liabilities] = [70,600,000-10,400,000] =60200000 EVA = [5940000+7320000(1-0.30)-0.14(60200000) =[11064000-8428000] =$2636000 EVA for Residential waste is .. = [PAT+INTEREST(1-t)]-c* CAPITAL EMPLOYED here capital employed= [ Total assts - current liabilities] = [70,600,000-10,400,000] =60200000 EVA = [5940000+7320000(1-0.30)-0.14(60200000) =[11064000-8428000] =$2636000

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