I5

Valuing Investment Center Assets Six Flags Entertainment Corp 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 $75 million and current liabilities of $5 million. Assume also that in the current year, this particular theme park had sales of $65 million and pretax division income of $12 million. The replacement cost of all the assets in this park is estimated to be $115 million. The company has a 20% tax rate and a target return of 10%% and a cost of capital of 6%. Required a. Calculate the ROI, residual income, and EVA for Six Flags over Georgia using asset book value in the valuation basis for the investment center asset base. ROI (rounded to the nearest whole percentage point): 10.76 * % Residual income: $ 9.6 * million EVA: $ 2 * million b. Repeat requirement (a) using replacement cost as the investment center asset value. ROI (rounded to the nearest whole percentage point): 10.76 * % Residual income: $ 12 x million EVA: $ 23.92 * million