ECONOMIC VALUE ADDED Washington Company has two divisions: the Adams Division and the Jefferson Division.

The following information pertains to last year’s results:

Adams Division Jefferson Division Net (after-tax) income $ 605,000 $ 315,000 Average operating assets 4,000,000 3,250,000 Washington’s actual cost of capital was 12 percent.

Required:

. Calculate the EVA for the Adams Division.

. Calculate the EVA for the Jefferson Division.

. Is each division creating or destroying wealth?

Exercise