1. BIG INC rewards it’s managers on (before tax) Return on Assets (ROA). BIG INC has revenues of $100m, and expenses (including interest expense) of $82m. Total assets are $90m. BIG INC’s weighted average cost of capital is 12%. BIG INC is considering buying TALL Inc., which has revenues of $15m, assets of $10m, and expenses of $14m (including interest expense).

1. Would BIG INC’s managers be in favor of this purchase? Explain
2. Would BIG INC’s shareholders be in favor? Explain.

Answer rating: 100% (QA)

ROA of Big Inc 10082901290 032 ROA of Tall Inc 1514101210 0... View the full answer