Charybdis, Inc., manufactures and sells whirlpool tubs through three divisions: Residential, Commercial, and International. Each division is
Question:
Charybdis, Inc., manufactures and sells whirlpool tubs through three divisions: Residential, Commercial, and International. Each division is evaluated as a profit center. Data for each division for last year are as follows (numbers in thousands).
The income tax rate for Charybdis, Inc., is 40%. Charybdis, Inc., has two sources of fi¬
nancing: bonds paying 8% interest, which account for 30% of total investment, and equity accounting for the remaining 70% of total investment. Charybdis, Inc., has been in business for over 15 years and is considered a relatively stable stock, despite its link to the cyclical construction industry. As a result, Charybdis stock has an opporti^huy’cost of 5% over the 6 % long-term government bond rate. Charybdis' total capital employed is $3 million ($2,100,000 for the Residential Division, $500,000 for the Commercial Division, and the re¬
mainder for the International Division).
Required Calculate Charybdis' weighted average cost of capital.
3. Calculate EVA for each division and for Charybdis, Inc, 4. Comment on the performance of each of the divisions.
Step by Step Answer:
Cost Management Accounting And Control
ISBN: 9780324002324
3rd Edition
Authors: Don R. Hansen, Maryanne M. Mowen