Pegasus Recycling Has a Subsidiary That Recycles Yard Waste and Another

question 93

Multiple Choice

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

• A) Yard recycling, because it has a higher return on investment
• B) Paper recycling, because it has a higher residual income
• C) Both contributed equally in different ways
• D) More information is needed to determine the answer

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Definitions:

Glutamate

is an important neurotransmitter in the brain that plays a key role in cellular metabolism and functions as a primary excitatory neurotransmitter.

Autonomic Nervous System

The part of the nervous system that controls involuntary actions of the smooth muscles and heart and gland functions.

Sympathetic

Part of the autonomic nervous system that increases the heart rate, constricts blood vessels, and raises blood pressure, typically activated in stress responses.

Parasympathetic

One part of the autonomic nervous system that promotes relaxation, conservation of energy, and digestion.