Calculating EVA

Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $$191,000$ after income taxes. Capital employed

equaled $$2\mathrm{.}9$ million. Brewster is $40$ percent equity and $60$ percent $10-$year bonds paying $6$ percent interest. Brewster's marginal tax rate is $40$

percent. The company is considered a fairly risky investment and probably commands a $12-$point premium above the $4$ 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 decimal places. If the EVA is

negative, enter your answer as a negative amount.

No changes are made; calculate EVA using the original data.

$

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 and $7$ percent the

second year. Calculate revised EVA for both years.

EVA

Year $1$ $