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Dorothy Taylor operates a popular summer camp for elementary school children. Projections for the current year are as follows: Sales revenue $7,740,000 Operating income $681,750
Dorothy Taylor operates a popular summer camp for elementary school children. Projections for the current year are as follows: Sales revenue $7,740,000 Operating income $681,750 Average assets $3,888,000 The camp's weighted average cost of capital is 9%, and Dorothy requires that all new investments generate a return on investment of at least 13%. The camp's current tax rate is 30%. At last week's advisory board meeting, Dorothy told the board that she had up to $70,000 to invest in new facilities at the camp and asked them to recommend some projects. Today the board's president presented Dorothy with the following list of three potential investments to improve the camp facilities. Playground Swimming Pool Gym Incremental operating income $ 1,320 $ 6,160 $ 3,660 Average total assets 12,000 38,500 24,400 (a) Calculate the return on investment, residual income, and economic value added for each of the three projects. (Enter negative amounts using either a negative sign preceding the number, eg. -45 or parentheses, e.g. (45). Round Return on Investment answer to 2 decimal places, e.g. 15.25 & all other answers to 0 decimal places, eg. 15 or 15%.) Playground Pool Gym Return on Investment % % Residual Income $ $ $ Economic Value Added $ $ $
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