1. Scrumptious Sweets' decision to invest in a new machine to speed up the production of donuts and make the donuts more uniform in shape and size. The cost of the machine is $3,000,000, and it is expected to generate a profit of $500,000. Assume the tax rate for Scrumptious is 20% and from the prior slide, WACC is 11%. Evaluate the decision using EVA.

2. Suppose the donut division of Scrumptious Sweets is considering acquiring new machinery to speed up the production of donuts and make the donuts more uniform in shape and size. The cost of the machine is $2,000,000, and it is expected to generate a profit of $600,000. Scrumptious has a corporate policy of a required minimum rate of return on projects of 20%. What is residual income?

Answer rating: 100% (QA)

1 EVA economic value added is a profitability ... View the full answer