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Construction Associates. The interest rate on Golden Gates $66 million of long-term debt is 5 percent, and the companys tax rate is 40 percent. The
Construction Associates. The interest rate on Golden Gates $66 million of long-term debt is 5 percent, and the companys tax rate is 40 percent. The cost of Golden Gates equity capital is 15 percent. Moreover, the market value (and book value) of Golden Gates equity is $81 million. The company has two divisions: the real estate division and the construction division. The divisions total assets, current liabilities, and before-tax operating income for the most recent year are as follows: Division Total Assets Current Liabilities Before-Tax Operating Income Real estate $ 90,000,000 $ 5,900,000 $ 20,400,000 Construction 69,000,000 3,500,000 18,200,000 Required: Calculate the economic value added (EVA) for each of Golden Gate Construction Associates divisions. Note: Round your weighted-average cost of capital to 3 decimal places (i.e. .123). Enter your answers in millions rounded to 3 decimal places (i.e. $1,234,000 should be entered as $1.234)
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