10/4/10-18

Paula Boothe, president of the Armange Corporation, has mandated a minimum 10% return on investment for any project undertaken by the company. Given the company's decentralization, Paula leaves a investment decisions to the divisional managers as long as they anticipate a minimum rate of return of at least 10%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 12% 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, 822, 000 in a new line of energy drinks that is expected to generate $235, 000 in operating income. Assume that Armange Corporation's actual weighted-average cost of capital is 9% and its tax rate s 31%. 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.) If Martin Koch is evaluated based on economic value added, will he choose to invest in the new line of energy drinks