CarKing 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 Cos...............................................$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 Car King?

      b)   What would be the new EVA amount if capital structure of the company is 70% debt and 30% equity?