Cornwall Company has two divisions, A and B. Information for each division is as follows: What is EVA for Division A?
A) $40,000
B) $28,000
C) $15,000
D) $25,000

Question

Cornwall Company has two divisions, A and B. Information for each division is as follows:  What is EVA for Division A?
A) $40,000 
B) $28,000 
C) $15,000 
D) $25,000

Quizplus · Accepted Answer

EVA = NOPAT – (Total Capital * WACC)

For Division A:
- NOPAT = $80,000
- Total Capital = $500,000 + $600,000 = $1,100,000
- WACC = (10% * $500,000 / $1,100,000) + (12% * $600,000 / $1,100,000) = 0.0455 + 0.0655 = 0.111

EVA for Division A = $80,000 – ($1,100,000 * 0.111) = $28,000

Therefore, the best choice is B, with an EVA of $28,000.

Cornwall Company Has Two Divisions, a and B