Coldbrook Company has two sources of funds: long-term debt with a market and book value of $19,000,000 issued at an interest rate of 11%, and equity capital that has a market value of $7,000,000 (book value of $5,000,000). 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 16%, while the tax rate is 35%.

What is the EVA® for Brooksville? (Round intermediary calculations to four decimal places.)
A) $715,000
B) $390,730
C) $166,179
D) $324,270

Question

Coldbrook Company has two sources of funds: long-term debt with a market and book value of $19,000,000 issued at an interest rate of 11%, and equity capital that has a market value of $7,000,000 (book value of $5,000,000) . 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 16%, while the tax rate is 35%.

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

What is the EVA® for Brooksville? (Round intermediary calculations to four decimal places.)
A) $715,000 
B) $390,730 
C) $166,179 
D) $324,270

Quizplus · Accepted Answer

WACC = [(0.11 × (1 - 0.35) × $19,000,000) + (0.16 × $7,000,000)] / $26,000,000 = 0.0953
Brooksville () = ($1,100,000 × (1 - 0.35)) - [0.0953 × ($5,300,000 - $1,200,000)]
= $324,270

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