Managers in the various divisions at the MegaAuto Company have their performance measured using financial performance measures. For Return on Investment (ROI) measures, the manager earns bonuses based on the increase in ROI over the company average.

MegaAuto is a large retail and services company offering products and services. One division of the company called MegaTune offers motor vehicle repair services. The Division has been running very successfully however it only operates in the Eastern States of Australia.

The following information is forecast for the current MegaTune business division for the coming year:

Profit percentage (Return on Sales): 55%

Sales revenue: $40 000 000

Average capital employed $68 750 000

Additional information:

MegaAuto are considering expanding the business on South Australian and Western Australian sites to become a national operation. The estimated financial outcomes for the coming year of the new expansion would be as follows:

New projected profit percentage:	45%
New TOTAL projected sales revenue:	$50 000 000
ADDITIONAL Average capital required (i.e. ADDED to original capital):	$21 250 000

Further additional information:

In addition to the information given in Q1) and Q2) for the Expanded MegaTune Business, if the profit of the MegaTune business was subject to tax at the rate of 25% and the company has a Weighted Average Cost of Capital (WACC) of 16% and due to good relationships with the suppliers, MegaTune has an average of current liabilities (Creditors) of $10 000 000.

Required:

Calculate the Economic Value Added (EVA) for the MegaTune Division AFTER adjusting profit for tax AND adjusting the capital employed for creditors. (3 Marks)