Brewster is considering expanding but needs additional capital. The company could borrow money, but it is considering selling more common stock, which

would increase equity to $80$ percent of total financing. Total capital employed would be $$3,700,000.$ The new after$-$tax operating income would be $$390,000.$

Using the original data, calculate EVA. Then, recalculate EVA assuming the materials substitution described in Requirement $2.$ New after$-$tax income will be

$$390,000,$ and in Year $1,$ the premium will be $11$ percent above the long$-$term Treasury rate. In Year $2,$ it will be $8$ percent above the long$-$term Treasury rate.

$($Hint: You will calculate three EVAs for this requirement.$)$

EVA