8. Managers in the various divisions at the MegaAuto Company have their performance measured using financial...

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8. Managers in the various divisions at the MegaAuto Company have their performance measured using financial performance measures. For Return on Investment (ROI) measures, the manager earns bonuses based on the increase in ROI over the company average. MegaAuto is a large retail and services company offering products and services. One division of the company called MegaTune offers motor vehicle repair services. The Division has been running very successfully however it only operates in the Eastern States of Australia. The following information is forecast for the current MegaTune business division for the coming year: Profit percentage (Return on Sales): 55% Sales revenue: $40 000 000 Average capital employed $68 750 000 Additional information: MegaAuto are considering expanding the business on South Australian and Western Australian sites to become a national operation. The estimated financial outcomes for the coming year of the new expansion would be as follows: New projected profit percentage: New TOTAL projected sales revenue: $21 250 000 ADDITIONAL Average capital required (i.e. ADDED to original capital): 45% $50 000 000 Further additional information: In addition to the information given in Q1) and Q2) for the Expanded MegaTune Business, if the profit of the MegaTune business was subject to tax at the rate of 25% and the company has a Weighted Average Cost of Capital (WACC) of 16% and due to good relationships with the suppliers, MegaTune has an average of current liabilities (Creditors) of $10 000 000. Required: Calculate the Economic Value Added (EVA) for the MegaTune Division AFTER adjusting profit for tax AND adjusting the capital employed for creditors. (3 Marks) NOTE: Only WHOLE numbers and NO dollar signs or commas should be entered. For example if your answer is $1000.50, simply enter 1001 ONLY i.e. round to the next nearest whole number if required. Answer: 7100000 8. Managers in the various divisions at the MegaAuto Company have their performance measured using financial performance measures. For Return on Investment (ROI) measures, the manager earns bonuses based on the increase in ROI over the company average. MegaAuto is a large retail and services company offering products and services. One division of the company called MegaTune offers motor vehicle repair services. The Division has been running very successfully however it only operates in the Eastern States of Australia. The following information is forecast for the current MegaTune business division for the coming year: Profit percentage (Return on Sales): 55% Sales revenue: $40 000 000 Average capital employed $68 750 000 Additional information: MegaAuto are considering expanding the business on South Australian and Western Australian sites to become a national operation. The estimated financial outcomes for the coming year of the new expansion would be as follows: New projected profit percentage: New TOTAL projected sales revenue: $21 250 000 ADDITIONAL Average capital required (i.e. ADDED to original capital): 45% $50 000 000 Further additional information: In addition to the information given in Q1) and Q2) for the Expanded MegaTune Business, if the profit of the MegaTune business was subject to tax at the rate of 25% and the company has a Weighted Average Cost of Capital (WACC) of 16% and due to good relationships with the suppliers, MegaTune has an average of current liabilities (Creditors) of $10 000 000. Required: Calculate the Economic Value Added (EVA) for the MegaTune Division AFTER adjusting profit for tax AND adjusting the capital employed for creditors. (3 Marks) NOTE: Only WHOLE numbers and NO dollar signs or commas should be entered. For example if your answer is $1000.50, simply enter 1001 ONLY i.e. round to the next nearest whole number if required. Answer: 7100000

Answer rating: 100% (QA)

To calculate the Economic Value Added EVA for the MegaTune Division we need to adjust the ... View the full answer