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:
HazardousResidential
WasteWaste
Total assets$12,000,000$72,000,000
Noninterest-bearing current liabilities3,000,00012,000,000
Net income1,700,0006,000,000
Interest expense1,250,0002,300,000
Required rate of return8%10%
Tax rate35%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