Compute the eva of the division with and without investment

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Question - Return on Investment and Economic Value Added Calculations with Varying Assumptions Knitpix Products is a division of Parker Textiles Inc. During the coming year, it expects to earn income of $320,000 based on sales of $3.45 million. Without any new investments, the division will have average operating assets of $3 million. The division is considering a capital investment project-adding knitting machines to produce gaiters-that requires an additional investment of $600,000 and increases net income by $57,500 (sales would increase by $575,000). If made, the investment would increase beginning operating assets by $600,000 and ending operating assets by $450,000. Assume that the actual cost of capital for the company is 7%.

Required - Conceptual Connection: Compute the EVA of the division with and without the investment.

Reference no: EM132824722

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