Calculate the EVA of the two investments

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Reference no: EM132983388

Question: Suppose that the borrowing must be for the entire $1.5 million. Calculate the EVA of the two investments taken as a package. Based on EVA, are the investments profitable?

Automobile PI'OIIIICtS The manager of a division that produces add-on products for the automobile industry has just been presented the opportunity to invest in two independent projects.

The ?rst is an air conditioner for the back seats of vans and minivans. The second is a turbocharger. Without the investment, the division will have average assets for the coming year of $28.9 million and before-tax income of $3.179 million. The outlay required for each investment and the expected operating incomes are as follows: Air Conditioner Turbocharger Before-tax operating income $ 67,500 $ 89,700 Outlay $750,000 $690,000 Corporate headquarters will borrow up to $1.5 million for the automotive add-on division for further investments.

The amount borrowed will be through unsecured bonds at a rate of 12 percent. The marginal tax rate is 25 percent.

Reference no: EM132983388

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