Question
26. Your company has the debt to equity breakdown below. The cost of debt is 4% (based on the interest on debt of 5% and
26. Your company has the debt to equity breakdown below. The cost of debt is 4% (based on the interest on debt of 5% and the tax rate of 20%) and the cost of the equity is 8%.
COST OF CAPITAL | PROPORTION OF TOTAL ASSETS | |
Equity | 8% | .40 |
Debt | 4% based on interest rate(1-t) | .60 |
A) What is your companys Weighted Average Cost of Capital (WACC)?
B) Your companys Recruiting Division has $2,100,000 in total assets, which is the total capital employed by this division. The Earnings Before Interest and Tax (EBIT) of the Recruiting Division is $477,000, and the tax rate is 20%. What is the Economic Value Added (EVA) for the Recruiting Division? C) Is the Recruiting Division adding to the economic value of this company?
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