1 | The value of EVA is determined as below: |
EVA = Operating income after tax - weighted average cost of capital * capital employed | |
weighted average cost of capital = weight of debt*After tax cost of debt + weight of equity * cost of equity | |
values given in the question, | |
WACC = 60% * 7%(1-40%) + 40% * (13% + 5%) = 9.72% | |
EVA = 194000 - 9.72% (2600000) = -$58720 | |
2 | As per the required question, |
we have to calculate the revised weighted average cost of capital for each year: | |
WACC (year 1) = 60% * 7%(1-40%) + 40% * (11% + 5%) = 8.92% | |
EVA = 194000 - 8.92% (2600000) = -$37920 | |
WACC (year 2) = 60% * 7%(1-40%) + 40% * (8% + 5%) = 7.72% | |
EVA = 194000 - 7.72% (2600000) = -$6720 | |
Year 1 -$37920 | |
Year 2 -$6720 | |
3 | Again,we have to calculate the revised weighted average cost of capital for each year: |
WACC = 20% * 7%(1-40%) + 80% * (13% +5%) = 15.24% | |
EVA (year 1) = 380000 - 15.24% (4000000) = -$229600 | |
WACC = 20% * 7%(1-40%) + 80% * (11% +5%) = 13.64% | |
EVA (year 2) = 380000 - 13.64% (4000000) = -$165600 | |
WACC = 20% * 7%(1-40%) + 80% * (8% +5%) = 11.24% | |
EVA (year 3) = 380000 - 11.24% (4000000) = -$69600 | |
Year 1 -$229600 | |
Year 2 (11% premium) -$165600 | |
Year 3 (8% premium) -$69600 |
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $194,000 after...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $185,000 after income taxes. Capital employed equaled $2.3 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 7 percent interest. Brewster's marginal tax rate is 40 percent. The company is consi dered a fairly risky investment and probably commands a 12-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster's aunts, Abby and Martha, have just retired, and Brewster is...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $194,000 after income taxes. Capital employed equaled $2.6 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 7 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 13-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the...
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Calculator Print hom Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $195,000 after income taxes. Capital employed equaled $2.4 million, Brewster is 45 percent equity and 55 percent 10-year bonds paying 6 percent interest. Brewster's marginal tax rate is 40 percent. The company is considered a fairly risky Investment and probably commands a 13-point premium above the 4 percentrate on long-term Treasury bonds. Jonathan Brewster's sunts, Abby and Martha, have just retired, and Brewster...
Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $194,000 after income taxes. Capital employed equaled $2.8 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 7 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 12-point premium above the 4 percent rate on long-term Treasury bonds. Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the new CEO...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $192,000 after income taxes. Capital employed equaled $2.4 million. Brewster is 45 percent equity and 55 percent 10-year bonds paying 7 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 12-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $188,000 after income taxes. Capital employed equaled $2.3 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 7 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 12-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the...
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Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $188,000 after income taxes. Capital employed equaled $2.3 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 7 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 12-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $186,000 after income taxes. Capital employed equaled $2.9 million. Brewster is 45 percent equity and 55 percent 10-year bonds paying 7 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 13-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the...