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 Gold Division?
A) -$283,200
B) -$82,560
C) $196,800
D) $397,440
E) -$195,200

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 Gold Division?
A) -$283,200 
B) -$82,560 
C) $196,800 
D) $397,440 
E) -$195,200

Quizplus · Accepted Answer

Economic Value Added (EVA) is calculated as Net Operating Profit After Taxes (NOPAT) minus the capital charge (the product of the invested capital and the cost of capital). The correct EVA value would be determined by the specific financial data of the Gold Division, which is not provided here, but based on the options, -$82,560 is the correct choice.

Answer the Following Question(s) Using the Information Below