Waldorf Company has two sources of funds: long-term debt with a market and book value of $5,400,000 issued at an interest rate of 12%, and equity capital that has a market value of $4,300,000 (book value of $2,100,000). Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 35%.

What is the EVA® for Wichita? (Round intermediary calculations to four decimal places.)
A) $975,000
B) $959,040
C) $434,040
D) $356,760

Question

Waldorf Company has two sources of funds: long-term debt with a market and book value of $5,400,000 issued at an interest rate of 12%, and equity capital that has a market value of $4,300,000 (book value of $2,100,000) . Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 35%.

What is the EVA® for Wichita? (Round intermediary calculations to four decimal places.)

What is the EVA® for Wichita? (Round intermediary calculations to four decimal places.)
A) $975,000 
B) $959,040 
C) $434,040 
D) $356,760

Quizplus · Accepted Answer

Wichita () = ($1,500,000 × 0.65) - [(0.0966 × ($6,400,000 - $800,000)] = $434,040

Waldorf Company Has Two Sources of Funds: Long-Term Debt with a Market