Answer the following question(s) using the information below:
Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. Springfield has two operating divisions, the Blue division and the Gold division, with the following financial measures for the current year:

-What is Economic Value Added (EVA) for the Blue Division?
A) -$233,400
B) $21,960
C) $188,600
D) $433,960
E) -$63,800

Question

Answer the following question(s) using the information below:
Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. Springfield has two operating divisions, the Blue division and the Gold division, with the following financial measures for the current year:
 
-What is Economic Value Added (EVA) for the Blue Division?
A) -$233,400 
B) $21,960 
C) $188,600 
D) $433,960 
E) -$63,800

Quizplus · Accepted Answer

EVA = NOPAT - (WACC * Capital Employed)= $240,400 - (12% * $1,800,000)= $240,400 - $218,400= $21,960

Answer the Following Question(s) Using the Information Below