Problem 12-7

ELN Waste Management has a subsidiary that disposes of hazardous waste and a subsidiary that collects and disposes of residential garbage. Information related to the two subsidiaries follows:

Hazardous Waste	Residential Waste
Total assets	$15,250,000	$86,550,000
Noninterest-bearing current liabilities	3,250,000	13,180,000
Net income	1,930,000	6,670,000
Interest expense	1,447,000	8,000,000
Required rate of return	10%	13%
Tax rate	40%	40%

Calculate ROI for both subsidiaries. (Round answers to 2 decimal places, e.g. 15.32%.)

Hazardous Waste	Residential Waste
ROI	%	%

Calculate EVA for both subsidiaries. Note that since no adjustments for accounting distortions are being made, EVA is equivalent to residual income.

Hazardous Waste	Residential Waste
EVA	$	$

Which subsidiary has added the most to shareholder value in the last year? (Residential Waste/Hazardous Waste) has added the most to shareholder value.

Based on the limited information, which subsidiary is the best candidate for expansion? (Hazardous Waste/Residential Waste) is the best candidate for expansion.