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Calculate roi for both subsidiaries

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Reference no: EM131832280

PROBLEM - 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 Waste

Residential Waste

Total assets

$13,000,000

$70,000,000

Noninterest-bearing current liabilities

3,000,000

12,000,000

Net income

1,700,000

6,000,000

Interest expense

1,250,000

7,300,000

Required rate of return

12%

14%

Tax rate

40%

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.

Reference no: EM131832280

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