Answer the following question(s) using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centres 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 30%.

-What is the EVA for Stonybrook?
A) $1,108,000
B) $1,168,700
C) $1,315,063
D) $1,403,063
E) $994,188

Question

Answer the following question(s) using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centres 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 30%.
 
-What is the EVA for Stonybrook?
A) $1,108,000 
B) $1,168,700 
C) $1,315,063 
D) $1,403,063 
E) $994,188

Quizplus · Accepted Answer

EVA = Operating Income - (Total Assets x Cost of Capital)
For Stonybrook:
Total Assets = $10 million
Cost of Capital = (0.6 x 15%) + (0.4 x 10%) = 12%
EVA = $500,000 - ($10 million x 12%) = $1,108,000
Therefore, the answer is A.

Answer the Following Question(s) Using the Information Below