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i Body Normal No Spac... Heading 1 Heading 2 Heading 3 Heading4Title Paragraph Exercise D10-18 Paula Boothe, president of the Cheyenne Corporation, has mandated a
i Body Normal No Spac... Heading 1 Heading 2 Heading 3 Heading4Title Paragraph Exercise D10-18 Paula Boothe, president of the Cheyenne Corporation, has mandated a mnrnum 1 1 % 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 retum of at least 11%. 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 $1,834,000 in a new line of energy drinks that is expected to generate $241,000 in operating income. Assume that Cheyenne Corporation's actual weighted average cost of captal is 1 1% 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,ea 5,125) Economic value added If Martin Koch is evaluated based on economic value added, will he choose to invest in the new line of energy drinks
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