Six Flags Theme Parks Inc. operates theme parks in the United States, Mexico, and Europe. One of its first theme parks, Six Flags over Georgia, was built in the 1960s in Atlanta on a large tract of land that has appreciated enormously over the years. Although most of the rides and other attractions have a fairly short life, some of the major buildings that are still in use on the property have been fully depreciated since they were built. Assume that Six Flags over Georgia operates as an investment center with total assets that have a book value of \($100\) million and current liabilities of \($10\) million. Assume also that in 2017, this particular theme park had sales of \($120\) million and pretax division income of

\($20\) million. The replacement cost of all the assets in this park is estimated to be \($160\) million. The company has a 35 percent tax rate and a target return of 10% and a cost of capital of 8%.

Required

a. Calculate the ROI, residual income, and EVA for Six Flags over Georgia using book value as the valuation basis for the investment center asset base.

b. Repeat requirement

(a) using replacement cost as the investment center asset value.

c. Which valuation, accounting book value or replacement cost do you think the company uses to evaluate the managers of its various theme parks? Discuss.