Use the following to answer questions:
Daniels Co. uses long-term debt and equity capital as primary sources of funds. The long-term debt has a market value and book value of $8.5 million and was issued at a 9 percent interest rate. The equity capital has a book value of $3 million and a market value of $7.5 million. Daniels has 3 major centers located around the country with the following operating income, total assets and current liabilities:

The cost of equity capital is 12 percent, with a 40 percent tax rate.
-What is the EVA for the West Division?
A) $213,740
B) $143,300
C) $(43,450)
D) $487,240

Question

Use the following to answer questions:
Daniels Co. uses long-term debt and equity capital as primary sources of funds. The long-term debt has a market value and book value of $8.5 million and was issued at a 9 percent interest rate. The equity capital has a book value of $3 million and a market value of $7.5 million. Daniels has 3 major centers located around the country with the following operating income, total assets and current liabilities:
  
The cost of equity capital is 12 percent, with a 40 percent tax rate.
-What is the EVA for the West Division?
A) $213,740 
B) $143,300 
C) $(43,450) 
D) $487,240

Quizplus · Accepted Answer

EVA (Economic Value Added) is calculated as Net Operating Profit After Taxes (NOPAT) minus the capital charge (the product of the capital invested and the cost of capital). The negative value suggests that the West Division's capital charge exceeds its NOPAT.

Use the Following to Answer Questions