Paula Boothe, president of the Flint Corporation, has mandated a minimum 8% 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 10%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 13% 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 $1,812,000 in a new line of energy drinks that is expected to generate $329,000 in operating income. Assume that Flint Corporation's actual weighted-average cost of capital is 9% 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, eg.-5.125 or parenthesis, eg. (5.125). Round answer to O decimal places, e.g. 5,125) Economic value added $
Paula Boothe, president of the Flint Corporation, has mandated a minimum 8% 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 10%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 13% 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 $1,812,000 in a new line of energy drinks that is expected to generate $329,000 in operating income. Assume that Flint Corporation's actual weighted-average cost of capital is 9% 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, eg.-5.125 or parenthesis, eg. (5.125). Round answer to O decimal places, e.g. 5,125) Economic value added $
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing
Section: Chapter Questions
Problem 1CE: Forchen, Inc., provided the following information for two of its divisions for last year: Required:...
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![Paula Boothe, president of the Flint Corporation, has mandated a minimum 8% 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 10%. The Energy Drinks division, under the direction of manager Martin Koch, has
achieved a 13% 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 $1,812,000 in a new line of energy drinks that is expected to generate $329,000 in operating income.
Assume that Flint Corporation's actual weighted-average cost of capital is 9% 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 0 decimal places, e.g. 5,125.)
Economic value added $](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa5cf8e31-f3df-44d1-8e16-edf3053310db%2F7eabefa6-0ad7-4606-bf73-b034bc785285%2Fv6gfw4_processed.png&w=3840&q=75)
Transcribed Image Text:Paula Boothe, president of the Flint Corporation, has mandated a minimum 8% 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 10%. The Energy Drinks division, under the direction of manager Martin Koch, has
achieved a 13% 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 $1,812,000 in a new line of energy drinks that is expected to generate $329,000 in operating income.
Assume that Flint Corporation's actual weighted-average cost of capital is 9% 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 0 decimal places, e.g. 5,125.)
Economic value added $
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