(EVA) As a division manager of Camden Projects Corp., your performance is evaluated primarily on one measure: after-tax divisional segment income less the cost of capital invested in divisional assets. The fair value of invested capi¬ tal in your division is $37,500,000, the required return on capital is 10 percent, and the tax rate is 35 percent. Current income projections for 2007 follow:

You are considering an investment in a new product line that would, according to projections, increase 2007 pre-tax segment income by $600,000. The investment cost is not yet determinable because negotiations about sev¬ eral factors are still underway.

a. Ignoring the new investment, what is your projected EVA for 2007?

b. In light of your answer in part (a), what is the maximum amount that you would be willing to invest in the new product line?

c. Assuming that the new product line would require an investment of $2,100,000, what would be the revised projected EVA for your division in 2007 if the investment were made?

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Sales Expenses Segment income Taxes After-tax segment income $ 60,000,000 (52,500,000) $ 7,500,000 (2,625,000) $ 4,875,000