Coldbrook Company has two sources of funds: long-term debt with a market and book value of $17,000,000 issued at an interest rate of 11%, and equity capital that has a market value of $3,000,000 (book value of $4,000,000). Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 35%.

What is the EVA® for Bish Bash Falls? (Round intermediary calculations to four decimal places.)
A) $530,400
B) $264,061
C) $266,339
D) $159,638

Question

Coldbrook Company has two sources of funds: long-term debt with a market and book value of $17,000,000 issued at an interest rate of 11%, and equity capital that has a market value of $3,000,000 (book value of $4,000,000) . Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 35%.

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

What is the EVA® for Bish Bash Falls? (Round intermediary calculations to four decimal places.)
A) $530,400 
B) $264,061 
C) $266,339 
D) $159,638

Quizplus · Accepted Answer

WACC = [(0.11 × (1 - 0.35) × $17,000,000) + (0.15 × $3,000,000)] / $20,000,000 = 0.0833
Bish Bash Falls () = ($816,000 × (1 - 0.15)) - [0.0833 × ($4,000,000 - $830,000)]
= $266,339

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