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:
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%
- Calculate ROI for both subsidiaries.
- Calculate EVA for both subsidiaries. Note that since no adjustments for accounting distortions are being made, EVA is equivalent to residual income.
- Which subsidiary has added the most to share hold value in the last year?
- Based on the limited information, which subsidiary is the best candidate for expansion? Explain.