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 $408 million debt is 9 percent, and the companys combined federal and state income tax rates amount to 30 percent. The cost of All-Canadians equity capital is 12 percent. Moreover, the market value of the companys equity is $527 million. (The book value of All-Canadians equity is $438 million, but that amount does not reflect the current value of the companys assets or the value of intangible assets.) The following data (in millions) pertain to All-Canadians three divisions.
Division | Before-Tax Operating Income | Current Liabilities | Total Assets | ||||||||||||
Pacific | $ | 16 | $ | 8 | $ | 78 | |||||||||
Plains | 53 | 7 | 308 | ||||||||||||
Atlantic | 56 | 11 | 491 | ||||||||||||
2. Compute the economic value added (or EVA) for each of the company's three divisions. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your final answers in dollars and not millions.)
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