You are the manager of a department that recently launched a new product line for High Flyer

Question:

You are the manager of a department that recently launched a new product line for High Flyer Incorporated. High Flyer invested $3.8 million of equity and $2.2 million of debt in the project, and the project has earned the company earnings before taxes of $1.25 million in 2006. Th e firm’s capital structure has a market value of $110 million for debt and $185 million of equity. Th e cost of debt is 6.8 percent, and the cost of equity is currently 11.3 percent. If the fi rm pays taxes at a rate of 36 percent, what is the EVA of the project your department launched?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...

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