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Pegasus Recycling Has a Subsidiary That Recycles Yard Waste and Another

question 93

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Pegasus Recycling has a subsidiary that recycles yard waste and another that recycles paper. Information related to the two subsidiaries follows.  Yard Recycling  Paper Recycling  Total assets $8,000,000$15,000,000 Noninterest-bearing current liabilities 500,0001,000,000 Net income 1,500,0002,600,000 Interest expense 600,000800,000 Required rate of return 8%11% Cost of capitall 7%9% Tax rate 30%32%\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?


Definitions:

Communication Process

The method by which information is exchanged between a sender and a receiver through a medium or channel.

Misrepresentation

The act of deliberately presenting false or misleading information.

Filtering

The process of selecting which information will be paid attention to and which will be ignored.

Information Overload

A state of being overwhelmed by the amount of information one receives, making it difficult to make decisions or concentrate on tasks.

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