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Pegasus Recycling has a subsidiary that recycles yard waste and another that recycles paper. Information related to the two subsidiaries follows. Yard Recycling Paper Recycling $8,000,000 $15,000,000 500,000 1,000,000 1,500,000 2,600,000 Interest expense 600,000 800,000 8% 11% Required rate of return 7% 9% Cost of capital 30% 32% Tax rate Based on the limited information, which subsidiary is the best candidate for expansion? Total assets Non interest-bearing current liabilities Net income

Pegasus Recycling has a subsidiary that recycles yard waste and another that recycles paper. Information related to the two subsidiaries follows. Yard Recycling Paper Recycling $8,000,000 $15,000,000 500,000 1,000,000 1,500,000 2,600,000 Interest expense 600,000 800,000 8% 11% Required rate of return 7% 9% Cost of capital 30% 32% Tax rate Based on the limited information, which subsidiary is the best candidate for expansion? Total assets Non interest-bearing current liabilities Net income

FINANCIAL ACCOUNTING
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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Pegasus Recycling has a subsidiary that recycles yard waste and another that recycles paper. Information related to the two subsidiaries follows. Yard Recycling Paper Recycling Total assets Non interest-bearing current liabilities Net income $15,000,000 1,000,000 2,600,000 800,000 8% 11% Cost of capital 7% 9% Tax rate 30% 32% Based on the limited information, which subsidiary is the best candidate for expansion? Interest expense Required rate of return $8,000,000 500,000 1,500,000 600,000
Transcribed Image Text:Pegasus Recycling has a subsidiary that recycles yard waste and another that recycles paper. Information related to the two subsidiaries follows. Yard Recycling Paper Recycling Total assets Non interest-bearing current liabilities Net income $15,000,000 1,000,000 2,600,000 800,000 8% 11% Cost of capital 7% 9% Tax rate 30% 32% Based on the limited information, which subsidiary is the best candidate for expansion? Interest expense Required rate of return $8,000,000 500,000 1,500,000 600,000
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