Correll Company has two divisions, A and B. Information for each division is as follows:
$\begin{array}{lcc}
& \underline{\text { A}}& \underline{\text { B}}\
\text { Net earnings for division } & \$ 40,000 & \$ 260,000 \
\text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \
\text { Target rate of return } & 15 \% & 18 \% \
\text { Margin } & 10 \% & 20 \% \
\text { Weighted average cost of capital } & 12 \% & 12 \%
\end{array}$
-Refer to the figure.What is EVA for Division B?
A)$44,000
B)$116,000
C)$144,000
D)$216,000

Question

Quizplus · Accepted Answer

EVA for Division B = Net earnings for Division B - (Asset base for Division B x Weighted average cost of capital)= $260,000 - ($1,200,000 x 0.12)= $260,000 - $144,000= $116,000

Correll Company Has Two Divisions, a and B -Refer to the Figure