Coldbrook Company has two sources of funds: long-term debt with a market and book value of $17,000,000 issued at an interest rate of 11%, and equity capital that has a market value of $6,000,000 (book value of $5,500,000). Coldbrook Company has profit centers 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 35%.

What is the EVA® for Stonybrook? (Round intermediary calculations to four decimal places.)
A) $1,184,600
B) $1,755,000
C) $570,400
D) $658,693

Question

Coldbrook Company has two sources of funds: long-term debt with a market and book value of $17,000,000 issued at an interest rate of 11%, and equity capital that has a market value of $6,000,000 (book value of $5,500,000) . Coldbrook Company has profit centers 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 35%.

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

What is the EVA® for Stonybrook? (Round intermediary calculations to four decimal places.)
A) $1,184,600 
B) $1,755,000 
C) $570,400 
D) $658,693

Quizplus · Accepted Answer

WACC = [(0.11 × (1 - 0.35) × $17,000,000) + (0.15 × $6,000,000)] / $23,000,000 = 0.0920
Stonybrook () = ($2,700,000 × (1 - 0.35)) - [0.0920 × ($9,600,000 - $3,400,000)]
= $1,184,600

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