Stonex Corp,whose tax rate is 35%,has two sources of funds: long-term debt with a market value of $6,200,000 and an interest rate of 9%,and equity capital with a market value of $14,000,000 and a cost of equity of 13%.Stonex has two operating divisions,the Blue division and the Gold division,with the following financial measures for the current year:

Calculate EVA for the Gold Division.(Round intermediary calculations to four decimal places. )
A)-$56,290
B)$56,290
C)$1,040,000
D)$983,710

Question

Stonex Corp,whose tax rate is 35%,has two sources of funds: long-term debt with a market value of $6,200,000 and an interest rate of 9%,and equity capital with a market value of $14,000,000 and a cost of equity of 13%.Stonex has two operating divisions,the Blue division and the Gold division,with the following financial measures for the current year:

Calculate EVA for the Gold Division.(Round intermediary calculations to four decimal places. )

Calculate EVA for the Gold Division.(Round intermediary calculations to four decimal places. )
A)-$56,290 
B)$56,290 
C)$1,040,000 
D)$983,710

Quizplus · Accepted Answer

WACC = [($6,200,000 × (1 - 0.35)× (0.09))+ ($14,000,000 × 0.13)] / ($6,200,000 + $14,000,000)= 0.1081
EVA = ($1,600,000 × (1 - 0.35))- (($12,000,000 - $2,900,000)× 0.1081)= $56,290

Stonex Corp,whose Tax Rate Is 35%,has Two Sources of Funds