Pegasus Recycling Has a Subsidiary That Recycles Yard Waste and Another

question 70

Multiple Choice

Pegasus Recycling has a subsidiary that recycles yard waste and another that recycles paper. Information related to the two subsidiaries follows. $\begin{array}{lrr}&\text { Yard Recycling }&\text { Paper Recycling }\\\hline\text { Total assets } & \$ 8,000,000 & \$ 15,000,000 \\\text { Noninterest-bearing current liabilities } & 500,000 & 1,000,000 \\\text { Net income } & 1,500,000 & 2,600,000 \\\text { Interest expense } & 600,000 & 800,000 \\\text { Required rate of return } & 8 \% & 11 \% \\\text { Cost of capitall } & 7 \% & 9 \% \\\text { Tax rate } & 30 \% & 32 \%\end{array}$ How much is the return on investment for the Paper Recycling Division?

• A) 19.65%
• B) 20.40%
• C) 22.46%
• D) 14.69%

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