SouthCo has two divisions, a tax rate of 40%, and a minimum rate of return...
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SouthCo has two divisions, a tax rate of 40%, and a minimum rate of return of 20%. Division A has a weighted average cost of capital of 6% and is looking at a new project that will generate a profit of $1,080,000 from a machine that costs $4,500,000. Division B has a weighted average cost of capital of 12% and is looking at a new project that will generate a profit of $2,030,000 from a machine that costs $5,800,000. a) Calculate the EVA for each of SouthCo's divisions. Division AEVA=$ Division BEVA=$ b) Calculate the RI for each of SouthCo's divisions. Division ARI =$ Division B RI =$ c) If SouthCo uses EVA to evaluate the projects, which division has the better project and by how much? d) If SouthCo uses RI, which division has the better project and by how much
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SouthCo has two divisions, a tax rate of 40%, and a minimum rate of return of 20%. Division A has a weighted average cost of capital of 6% and is looking at a new project that will generate a profit of $1,080,000 from a machine that costs $4,500,000. Division B has a weighted average cost of capital of 12% and is looking at a new project that will generate a profit of $2,030,000 from a machine that costs $5,800,000. a) Calculate the EVA for each of SouthCo's divisions. Division AEVA=$ Division BEVA=$ b) Calculate the RI for each of SouthCo's divisions. Division ARI =$ Division B RI =$ c) If SouthCo uses EVA to evaluate the projects, which division has the better project and by how much? d) If SouthCo uses RI, which division has the better project and by how much 