Springfield Corporation,whose tax rate is 30%,has two sources of funds: long-term debt with a market value of $8,400,000 and an interest rate of 8%,and equity capital with a market value of $14,000,000 and a cost of equity of 13%.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? (Round intermediary calculations to four decimal places. )

Question

Springfield Corporation,whose tax rate is 30%,has two sources of funds: long-term debt with a market value of $8,400,000 and an interest rate of 8%,and equity capital with a market value of $14,000,000 and a cost of equity of 13%.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? (Round intermediary calculations to four decimal places. )

Quizplus · Accepted Answer

WACC = [($8,400,000 × (1 - 0.3)× (0.08))+ ($14,000,000 × 0.13)] / ($8,400,000 + $14,000,000)= 0.1023
EVA = ($1,059,000× (1 - 0.3))- (($9,500,000 - $3,100,000)× 0.1023)= $86,580

Springfield Corporation,whose Tax Rate Is 30%,has Two Sources of Funds