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Actual weighted-averagecost of capital

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Paula Boothe, president of the Armange Corporation, has mandateda minimum 11% return on investment for any project undertaken bythe company. Given the company's decentralization, Paula leaves allinvestment decisions to the divisional managers as long as theyanticipate a minimum rate of return of at least 11%. The EnergyDrinks division, under the direction of manager Martin Koch, hasachieved a 13% return on investment for the past three years. Thisyear is not expected to be different from the past three. Koch hasjust received a proposal to invest $1,847,000 in a new line ofenergy drinks that is expected to generate $227,000 in operatingincome. Assume that Armange Corporation's actual weighted-averagecost of capital is 10% and its tax rate is 30%. Calculate theeconomic value added of the proposed new line of energy drinks.

Reference no: EM131197994

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