Louisiana Shrimp Boats, Inc. (LSB), is a seafood restaurant chain operating throughout the south. The company has two sources of long-term capital: debt and equity. LSB’s cost of issuing debt is the aftertax cost of the interest payments on the debt, considering the fact that the interest payments are tax deductible. LSB’s cost of equity capital is the investment opportunity rate of LSB’s investors, that is, the rate they could earn on investments of risk similar to that of investing in Louisiana Shrimp Boats, Inc. The interest rate on LSB’s $80 million of long-term debt is 9 percent, and the company’s tax rate is 40 percent. LSB’s cost of equity capital is 14 percent. Moreover, the market value (and book value) of LSB’s equity is $120 million.

Louisiana Shrimp Boats, Inc., consists of two divisions: properties division and food service division.

The divisions’ total assets, current liabilities, and before-tax operating income for the most recent year are as follows:

Before-Tax Total Current Division Operating Income Assets Liabilities PIOWSRUGS mere cree: erctie ceeeutr cee teeter ee $28,900,000 $145,000,000 $3,000,000 BOO CIS SUVIC Crete te rene sherosee, Avena ana eri 14,900,000 64,000,000 6,000,000 Required

a. Calculate the weighted-average cost of capital for Louisiana Shrimp Boats, Inc.

b. Calculate the economic value added (EVA) for each of LSB’s divisions.