Reference no: EM132970849

ELN Waste Management has a subsidiary that disposes of hazardous waste and subsidiary that collects and disposes of residential garbage. Information related to the two subsidiaries follows:

                                              Hazardous                                  Residential

                                                            Waste                                         Waste

Total Assets                               $15,000,000                        $87,000,000

Noninterest-bearing current liabilities   $15,000,000                    $87,000,000

Net Income                                   $15,000,000                      $87,000,000

Interest expense                               $15,000,000                     $87,000,000

Required rate of return                              10%                          13%

Tax rate                                                   40%                       40%

Required

Problem 1: Calculate ROI for both subsidiaries.

Problem 2: Calculate EVA for both subsidiaries. Note that since no adjustments for accounting distortions are being made, EVA is equivalent to residual income.

Problem 3: Which subsidiary has added the most to share hold value in the last year?

Problem 4: Based on the limited information, which subsidiary is the best candidate for expansion? Explain.