Waldorf Company has two sources of funds: long-term debt with a market and book value of $5,200,000 issued at an interest rate of 13%, and equity capital that has a market value of $4,200,000 (book value of $2,400,000). Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 13%, while the tax rate is 35%.

What is the EVA® for St. Louis? (Round intermediary calculations to four decimal places.)
A) $65,739
B) $51,048
C) $312,000
D) $260,952

Question

Waldorf Company has two sources of funds: long-term debt with a market and book value of $5,200,000 issued at an interest rate of 13%, and equity capital that has a market value of $4,200,000 (book value of $2,400,000) . Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 13%, while the tax rate is 35%.

What is the EVA® for St. Louis? (Round intermediary calculations to four decimal places.)

What is the EVA® for St. Louis? (Round intermediary calculations to four decimal places.)
A) $65,739 
B) $51,048 
C) $312,000 
D) $260,952

Quizplus · Accepted Answer

WACC = [(0.13 × (1 - 0.35) × $5,200,000) + (0.13 × $4,200,000)] / $9,400,000 = 0.1048
St. Louis () = ($480,000 × (1 - 0.35)) - [0.1048 × ($2,600,000 - $110,000)] = $312,000 - $260,952 = $51,048

Waldorf Company Has Two Sources of Funds: Long-Term Debt with a Market