Question
All-Canadian, Ltd., is a multiproduct company with three divisions: Pacific Division, Plains Division, and Atlantic Division. The company has two sources of long-term capital: debt
All-Canadian, Ltd., is a multiproduct company with three divisions: Pacific Division, Plains Division, and Atlantic Division. The company has two sources of long-term capital: debt and equity. The interest rate on All-Canadian's $415 million debt is 9 percent, and the company's combined federal and state income tax rates amount to 30 percent. The cost of All-Canadian's equity capital is 12 percent. Moreover, the market value of the company's equity is $535 million. (The book value of All-Canadian's equity is $437 million, but that amount does not reflect the current value of the company's assets or the value of intangible assets.)
The following data (in millions) pertain to All-Canadian's three divisions.
Division Before-Tax Operating Income Current Liabilities Total Assets
Pacific $17 $7 $63
Plains 46 6 313
Atlantic 49 10 493
Compute the economic value added (or EVA) for each of the company's three divisions.(
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