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ELN Waste Management has a subsidiary that disposes of hazardous
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ELN Waste Management has a subsidiary that disposes of hazardous waste and a subsidiary that collects
and disposes of residential garbage.  Information related to the two subsidiaries follows:
        Hazardous Waste   Residential Waste
Total assets $15,300,000 $87,000,000
Noninterest-bearing current liabilities 3,300,000 13,200,000
Net income 1,870,000 6,600,000
Interest expense 1,375,000 8,030,000
Required rate of return 10% 13%
Tax rate 40% 40%
Required:
a.) Calculate ROI for both subsidiaries
b.) Calculate EVA for both subsidiaries.  Note that since no adjustements for accounting distortions are being
made, EVA is equivalent to residual income.
c.) Which subsidiary has added the most to shareholders value in the last year?
d.) Based on the limited information, which subsidiary is the best candidate for expansion?

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This question was answered on: Feb 21, 2020

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