Solution-Calculate the economic value added of the proposed

Calculate the economic value added of the proposed new line

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Question - Paula Boothe, president of the Ayayai Corporation, has mandated a minimum 10% return on investment for any project undertaken by the company. Given the company's decentralization, Paula leaves all investment decisions to the divisional managers as long as they anticipate a minimum rate of return of at least 12%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 12% return on investment for the past three years. This year is not expected to be different from the past three. Koch has just received a proposal to invest $1,820,000 in a new line of energy drinks that is expected to generate $332,000 in operating income. Assume that Ayayai Corporation's actual weighted-average cost of capital is 9% and its tax rate is 31%. Calculate the economic value added of the proposed new line of energy drinks.

Reference no: EM132998624

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Calculate the economic value added of the proposed new line

Reference no: EM132998624

Reference no: EM132998624

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