Question
Coptermagic Company supplies helicopters to corporate clients. Coptermagic has two sources of funds: long term debt with a market and book value of $32 million
Coptermagic Company supplies helicopters to corporate clients. Coptermagic has two sources of funds: long term debt with a market and book value of $32 million issued at an interest rate of 10%, and equity capital that has a market value of $18 million (book value of $8 million). The cost of equity capital for Coptermagic is 15%, and its tax rate is 30%. Coptermagic has profit centers in four divisions that operate autonomously. The company's results for 2019 are as follows:
Operating Income Assets Current Liabilities
New York $1,750,000 $11,500,000 $2,500,000
Chicago 2,400,000 9,000,000 3,500,000
Dallas 3,675,000 27,500,000 9,500,000
Los Angeles 4,200,000 25,000,000 8,000,000
Required:
a. Compute Coptermagic's weighted average cost of capital. What is the cost of capital for the Dallas Division? (Round intermediary calculations to two decimal places.)
b. What is Economic Value Added (EVA) for the Dallas Division?
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