Question

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All-Canadian, Ltd. is a multiproduct company with three divisions: Pacific Division, Plains Division, and Atlantic Division. The company has two sources of long-term capital: debt and equity. The interest rate on All-Canadian’s $410 million debt is 9 percent, and the company’s tax rate is 30 percent. The cost of All-Canadian’s equity capital is 12 percent. Moreover, the market value of the company’s equity is $615 million. (The book value of All-Canadian’s equity is $441 million, but that amount does not reflect the current value of the company’s assets or the value of intangible assets.)

The following data (in millions) pertain to All-Canadian’s three divisions.

Division	Before-Tax Operating Income					Current Liabilities					Total Assets
Pacific			16					8					67
Plains			45					7					317
Atlantic			48					11					497

Required:

1. Compute All-Canadian’s weighted-average cost of capital (WACC). (Do not round intermediate calculations. Round your final answer to 2 decimal places (i.e., .1234 should be entered as 12.34).)

	Weighted-average cost of capital %

2. Compute the economic value added (or EVA) for each of the company's three divisions. (Do not round intermediate calculations. Enter your final answers in dollars and not millions.)

	Division    Economic Value Added Pacific Plains Atlantic

Answer 1