Jackie Chin 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 |
$12,000,000 |
$72,000,000 |
| Noninterest bearing current liabilities |
3,000,000 |
12,000,000 |
| Net income |
1,700,000 |
6,000,000 |
| Interest expense |
1,250,000 |
2,300,000 |
| Required rate of return |
8% |
10% |
| Tax rate |
35% |
40% |
Based on the limited information, which subsidiary is the best candidate for expansion? Answer
| |
A. |
Hazardous waste, because it has a higher residual income. |
| |
B. |
Hazardous waste, because it has a higher return on investment |
| |
C. |
Residential waste, because it has a higher residual income. |
| |
D. |
Residential waste, because it has a higher return on investment |
