The Energy Drinks division

Paula Boothe, president of the Bramble Corporation, has mandated a minimum 10% 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 12%.

The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 14% 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 $1,800,000 in a new line of energy drinks that is expected to generate $312,000 in operating income. Assume that Bramble Corporation’s actual weighted-average cost of capital is 10% and its tax rate is 32%.

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, e.g. -5,125 or parenthesis, e.g. (5,125).

Round answer to 0 decimal places, e.g. 5,125.)Economic value added$enter the economic value added in dollars rounded to 0 decimal places Files: Screenshot (238).png

Leave a Reply

Your email address will not be published.