Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1 to 8 question Question 3 Lumber corporation is a private company and the managers want to know how much of economic value has been

image text in transcribed 1 to 8 question
Question 3 Lumber corporation is a private company and the managers want to know how much of economic value has been added during the current year. So they decided to use EVA to measure the financial performance. The company provided the management accountant department with the following financial data found in the table below: Current liabilities 65,300 25% Current Assets Long term liabilities Bond Payable] 185,200 Equity 150,000 Research & development 25,000 Training expenses 13,000 Tax rate 25% Net income 45,500 Sales 76,200 Cogs 33,500 Interest paid on debt 17,000 Risk free rate 6% Risk premium 6.5% Assume that current liabilities are not interest bearing obligation Cost of equity is government bond rate + risk premium REQUIRED 1. Calculate tax, interest expense and EBIT (operating income) 2. Calculate the EBIT after tax. 3. Calculate the total assets. 4. Calculate total capital employed {TCE). 5. What is the WACC of the company? 6. Calculate the economic value added [EVA] 7. What will happen to the share if a company has negative EVA for a while? Why? 8. Why do we use WACC instead of cost of equity only (Re)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Internal Auditing An Integrated Approach

Authors: Richard E. Cascarino

2nd Edition

0702172693, 978-0702172694

More Books

Students also viewed these Accounting questions