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Paula Boothe, president of the Blue Corporation, has mandated a minimum 9% 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 11%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 14% 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 $1,839,000 in a new line of energy drinks that is expected to generate $333,000 in operating income. Assume that Blue Corporation's actual weighted-average cost of capital is 11% and its tax rate is 30%. (a) Calculate the economic value added of the proposed new line of energy drinks. (If the economic value added is negative then enter with a negative sign preceding the number, e.g. -5,125 or parenthesis, e.g. (5,125). Round answer to O decimal places, e.g. 5,125.) Economic value added $

Paula Boothe, president of the Blue Corporation, has mandated a minimum 9% 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 11%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 14% 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 $1,839,000 in a new line of energy drinks that is expected to generate $333,000 in operating income. Assume that Blue Corporation's actual weighted-average cost of capital is 11% and its tax rate is 30%. (a) Calculate the economic value added of the proposed new line of energy drinks. (If the economic value added is negative then enter with a negative sign preceding the number, e.g. -5,125 or parenthesis, e.g. (5,125). Round answer to O decimal places, e.g. 5,125.) Economic value added $

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Paula Boothe, president of the Blue Corporation, has mandated a minimum 9% 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 11%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 14% 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 $1,839,000 in a new line of energy drinks that is expected to generate $333,000 in operating income. Assume that Blue Corporation's actual weighted-average cost of capital is 11% and its tax rate is 30%. (a) Calculate the economic value added of the proposed new line of energy drinks. (If the economic value added is negative then enter with a negative sign preceding the number, e.g. -5,125 or parenthesis, e.g. (5,125). Round answer to O decimal places, e.g. 5,125.) Economic value added $
Transcribed Image Text:Paula Boothe, president of the Blue Corporation, has mandated a minimum 9% 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 11%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 14% 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 $1,839,000 in a new line of energy drinks that is expected to generate $333,000 in operating income. Assume that Blue Corporation's actual weighted-average cost of capital is 11% and its tax rate is 30%. (a) Calculate the economic value added of the proposed new line of energy drinks. (If the economic value added is negative then enter with a negative sign preceding the number, e.g. -5,125 or parenthesis, e.g. (5,125). Round answer to O decimal places, e.g. 5,125.) Economic value added $
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