Problem 12-7 (Part Level Submission) HS5 Waste Management has a subsidiary that

Question

Problem 12-7 (Part Level Submission) HS5 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 Residential Waste Waste Total assets Net income Interest expense Required rate of return Tax rate $15,231,100 $86,870,000 Noninterest-bearing current liabilities 3,296,100 13,249,600 1,897,500 6,605,500 1,420,000 8,036,100 13% 4096 10% 40% (a) Calculate ROI for both subsidiaries. (Round answers to 2 decimal places, e.g. 15.32%) Hazardous Waste Residential Waste ROI

Explanation / Answer

ROI = Net Operating Profit After tax (NOPAT) / Invested Capital

ROI for Harzarduos waste = (2,749,500 / 11,935,000 ) * 100 = 23.04 %

ROI for Residential waste = (11,427,160 / 73,620,400) *100 = 15.52 %

Harzarduos waste($) Residential waste ($) Net Income 1,897,500 6,605,500 Add : Tax @ 40 % 1,265,000 4,403,667 = Net Income before Tax 3,162,500 11,009,167 Add : Interest Expense 1,420,000 8,036,100 4,582,500 19,045,267 Less : Tax @ 40% 1,833,000 7,618,107 NOPAT 2,749,500 11,427,160 Total Assets 15,231,100 86,870,000 Less: Not interest bearing current liabilities 3,296,100 13,249,600 Invested Capital 11,935,000 73,620,400

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