Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $187,000 after income taxes. Capitat employed equaled $2.3 million, Brewster is 40 percent equity and 60 percent 10-year bonds paying 6 percent interest, Brewster's marginat tax rate is 40 percent. The company is considered a fairty risky investment and probably commands a 12-point premium above the 5 percent rate on long-term Treasury bonds Jonathan Brewster's aunts, Abby and Martha, have just retired, and Brewster is the new CEO of Brewster Company. He would like to improve EVA for the company. Compute EVA under each of the following independent scenarios that Brewster is considering Required: Use a spreadsheet to perform your calculations and round all interim and percentage figures to four decimat places. If the EVA is negative, enter your answer as a negative amount 1. No changes are made; calculate eva uning the original data 91,044 X 2. Sugar will be used to replace another natural ingredient (otomic number 33) in the elderberry wre. This should not affect couts but will begin to recte market assessment of Brewster Company, bringing the premium above long term restur til to 10 percent first percent the second Calculate revised EVA for both years. EVA Year: 5 30,600 X Year 2 SB, 200 X 3. 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 30 percent of total financing. Total capital employed would be $3,100,000. The new after-tax operating income would be $400,000 Using the orginal data, calculatu EVA. Then, recalculate EVA assuming the materials substitution described in Requirement 2. New after-tax income will be 5400,000, and in Year 1, the premium will be 10 percent above the long-term Treasury rate. In Year 2, it will be 7 percent above the long-term Treasury rato. (Hint: You will calculate three EVAs for this requirement EVA Year! 251,815 X Year 1 (10% premium) $ Year 2.7% premium) 5 1. Atte tax cost interest rate-Tex rate x Interest Rate), EVA = After tax operating income - (Weighted average cost of capital x Total capital employed) 2. calculate the EVA for both years with the new information 2. Sugar will be used to replace another natural ingredient (atomic number 33) in the elderberry wine. This should not affect costs but will begin to affect the market assessment of Brewster Company, bringing the premium above long-term Treasury bills to 10 percent the first year nd 7 percent the second year. Calculate revised EVA for both years. EVA Year 1 5 30,600 X Year 25 58,200 X 3. Brewster is considering expanding but needs additional capital. The company could borrow money, but it is considering sering more common stock, which would increase equity to 80 percent of total financing. Total capital employed would be 53,100,000. The new after-tax operating income would be $400,000, Using the original data, calculate EVA. Then, recalculate EVA assuming the materials substitution described in Requirement 2. New after-tax inscore will be $400,000, and in Year 1, the premuto will be 10 percent above the long-term Treasury rate. In Year 2, it will be 7 percent above the long-term Treasury rate (Hint: You will calculate throu EVAs for this requirement) EVA 251,815 X Year 1 (10% premium Year 207 premium)