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-Canadians $404 million debt is 9 percent, and the companys tax rate is 30 percent. The cost of All-Canadians equity capital is 10 percent. Moreover, the market value of the companys equity is $606 million. (The book value of All-Canadians equity is $434 million, but that amount does not reflect the current value of the companys assets or the value of intangible assets.)
Division | Before-Tax Operating Income | Current Liabilities | Total Assets | |||||||||||||
Pacific | $ | 18 | $ | 8 | $ | 74 | ||||||||||
Plains | 49 | 7 | 304 | |||||||||||||
Atlantic | 43 | 11 | 487 | |||||||||||||
Required:
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Compute All-Canadians weighted-average cost of capital (WACC). (Do not round intermediate calculations. Round your final answer to 2 decimal places (i.e., .1234 should be entered as 12.34).)
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2. Compute the economic value added (or EVA) for each of the company's three divisions. (Do not round intermediate calculations. Enter your final answers in dollars and not millions.)
Division: Economic Value Added
Pacific ????
plain ????
atlantic ???
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