Assume the Cell Phone Division of the First Electronics Corporation

question 56

Multiple Choice

Assume the Cell Phone Division of the First Electronics Corporation had the following results last year (in thousands) .Management's target rate of return is 10% and the weighted average cost of capital is 7%.Its effective tax rate is 30%. $$\begin{array} { | l | r | } \hline \text { Sales } & \$ 6,000,000 \\\hline \text { Operating income } & 900,000 \\\hline \text { Total assets } & 3,000,000 \\\hline \text { Current liabilities } & 750,000 \\\hline\end{array}$$
- What is the division's Economic Value Added (EVA) ?

• A)$ 157,500
• B)$ 472,500
• C)$ 600,000
• D)$ 630,000

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Definitions:

Privity Rule

A legal principle stating that contracts cannot confer rights or impose obligations upon any person who is not a party to the contract.

Gross Negligent Fraud

Extreme carelessness or reckless disregard for the truth or for the rights of others, often involving fraudulent intentions or outcomes.

Fraudulent Intent

The deliberate intention to deceive or cheat, often for personal gain or to cause loss to another.

Reasonably Foreseeable Users

Individuals who could be expected to use or be affected by a product or service, considered in legal and design considerations.