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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 $400 million debt is 9%, and the companys tax rate is 30%. The cost of All-Canadians equity capital is 12%. Moreover, the market value of the companys equity is $600 million. The following data (in millions) pertain to All-Canadians three divisions.
- Compute All-Canadians weighted-average cost of capital (we*re + wd*rd*(1-T))
- Whats the weight of debt? ____________ 2 points
- Whats the weight of equity? _____________2 points
- Whats the wacc? _________________6 points
- 15 points. Compute the economic value added (EVA) for each of the companys three divisions.
- 5 points. What conclusions can you draw from the EVA analysis?
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