ClamShell Security (CSS) is a division of a large, listed company, X3Cate Limited (X3L). The CSS Division produces software products to protect customer’s computers from infection from computer viruses and other malware. The sales of its products have been growing over the last few years as its products become more accepted in the market. The Board of X3L want to introduce a new product line that would specifically protect against Ransomware, a new security threat, particularly business customers. Each Divisional Manager can earn large bonuses on top of their base salaries if they maintain Return on Investment greater than 25% otherwise the bonus payments are halved.The following information is for the year that has just ended related to the CSS Division performance:Profit percentage (Return on Sales):30%Sales revenue:$15 000 000Average capital invested$18 000 000 Required:Using the same information provided for the past year, if X3l has a company-wide weighted average cost of capital of 15%, average creditor balances of $2,000,000 and their profits are taxed at 25%, calculate the EVA for the CSS Division.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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ClamShell Security (CSS) is a division of a large, listed company, X3Cate Limited (X3L). The CSS Division produces software products to protect customer’s computers from infection from computer viruses and other malware. The sales of its products have been growing over the last few years as its products become more accepted in the market. The Board of X3L want to introduce a new product line that would specifically protect against Ransomware, a new security threat, particularly business customers. Each Divisional Manager can earn large bonuses on top of their base salaries if they maintain Return on Investment greater than 25% otherwise the bonus payments are halved.

The following information is for the year that has just ended related to the CSS Division performance:

Profit percentage (Return on Sales):	30%
Sales revenue:	$15 000 000
Average capital invested	$18 000 000

Required:

Using the same information provided for the past year, if X3l has a company-wide weighted average cost of capital of 15%, average creditor balances of $2,000,000 and their profits are taxed at 25%, calculate the EVA for the CSS Division.

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