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Ernst Company has two sources of funds: long term debt with a market and book value of $8 million issued at an interest rate of
Ernst Company has two sources of funds: long term debt with a market and book value of $8 million issued at an interest rate of 12 percent; and, equity capital that has a market value of $5 million (book value of $3 million). The cost of equity capital is 4 percent, while the tax rate is 30 percent. Ernst Company has profit centres in the following locations with the following data: Total Operating Income Total Assets Current Liabilities $ $ LA New York 480,000 $ 600,000 $ 1,020,000 $ 2,000,000 $ 4,000,000 $ 6,000,000 100,000 $ 300,000 $ 600,000 Seattle The "Economic Value Added" for New York is? O a. $312,831 O b. $104,277 O c. $208,554 O d. $171,815
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