Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. Springfield has two operating divisions, the Blue division and the Gold division, with the following financial measures for the current year: What is Economic Value Added (EVA®)for the Blue Division?
A)-$233,400
B)$21,960
C)$188,600
D)$433,960

Question

Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. Springfield has two operating divisions, the Blue division and the Gold division, with the following financial measures for the current year:  What is Economic Value Added (EVA®)for the Blue Division?
A)-$233,400 
B)$21,960 
C)$188,600 
D)$433,960

Quizplus · Accepted Answer

The Answer of Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. Springfield has two operating divisions, the Blue division and the Gold division, with the following financial measures for the current year:  What is Economic Value Added (EVA®)for the Blue Division?
A)-$233,400 
B)$21,960 
C)$188,600 
D)$433,960

Springfield Corporation, Whose Tax Rate Is 40%, Has Two Sources