Problem: KFS has two divisions. Both have current sales of $1,000, current expected growth of 5%, and a WACC of 10%. Division A has high profitability (OP = 6%) but high capital requirements (CR = 78%). Division B has low profitability (OP = 4%) but low capital requirements (CR = 27%).
Q1. What is the MVA of each division, based on the current growth of 5%?
Q2. What is the MVA of each division if growth is 6%?
Q3. What is the EROIC of each division for 5% growth and for 6% growth?
Q4. How is this related to MVA?