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 Bish Bash Falls?
A) $338,563
B) $305,000
C) $275,500
D) $255,500
E) $220,188

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 Bish Bash Falls?
A) $338,563 
B) $305,000 
C) $275,500 
D) $255,500 
E) $220,188

Quizplus · Accepted Answer

WACC = [(.10 × (1 - .30) × $15,000,000) + (0.15 × $9,000,000)]/$24,000,000 = 0.100
Bish Bash Falls (EVA) = ($815,000 × (1 - .30)) - [0.100 × ($3,750,000 - $800,000)] = $570,500 - $295,000 = $275,500

Answer the Following Question(s) Using the Information Below