Paula Boothe, president of the Flounder Corporation, has mandated a minimum 9% return on investment for...

 

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Paula Boothe, president of the Flounder Corporation, has mandated a minimum 9% 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 11%. 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 $1,847,000 in a new line of energy drinks that is expected to generate $315,000 in operating income. Assume that Flounder Corporation's actual weighted-average cost of capital is 10% 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, eg. 5,125.) Economic value added $ Paula Boothe, president of the Flounder Corporation, has mandated a minimum 9% 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 11%. 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 $1,847,000 in a new line of energy drinks that is expected to generate $315,000 in operating income. Assume that Flounder Corporation's actual weighted-average cost of capital is 10% 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, eg. 5,125.) Economic value added $