Bayern is a company in the luxury car industry. To verify its performance, the company is

using economic value added (EVA), a managerial technique. The EVA for the company has

been calculated as $202,545. This amount has been determined with the following information.

Marginal tax rate 35%

Cos of debt before tax 11%

Cost of equity 13.5%

Costs capitalized for Development 25%

Costs capitalized for Research 30%

Amortization period 6 years

Operating Income $445,808

Capital Employed $1,950,000

Total Development Cost $80,000

Total Research Cost $120,000

Goodwill impairment loss included in income $36,500

REQUIRED:

a) Assume that R&D costs for the year occurred on Jan 1. What is the capital structure of

Bayern?

(Show your work)

b) What would be the new EVA amount if capital structure of the company is 70% debt and

30% equity? (Use 4 decimal places)