For this assignment you will assess the ability of each of General Electrics four divisions to create EVA, or Economic Value Added. The formula for EVA is given on page 318 of your textbook. Rather than compute this for General Electric, you will compute EVA separately for each of GEs four divisions. To do this you will need EBIT and Capital Employed for each division. You will also need a wacc or cost of capital that is specific to the division.

Separately for each division you will need to:

1. Compute the divisional equity beta by re-levering the industry asset beta using the debt-equity mix for GE as a whole (i.e. assume that each of GEs four divisions uses the same ratio of debt and equity).

2. Use that equity beta to compute the cost of equity for the division.

3. Use GEs debt-equity mix, corporate tax rate, and cost of debt, along with your divisional cost of equity to compute the cost of capital for the division.

4. Compute EVA for the division.

5.In which division(s) is GE creating and/or destroying value according to your EVA analysis?

Data for each of GEs Divisions

Division:	EBIT	Capital	Asset Beta
Healthcare	2,966	24,770	0.88
Aviation	2,882	38,298	1.05
Power	726	23,569	0.59
Renewable Energy	(795)	14,804	1.07

Data for GE at the Corporate Level

Equity (E)	99,571
Debt (D)	35,185
Total (V)	134,756
Tax Rate	26%
Cost of Debt	2.36%

Market Data

Government Bond Yield 2.00%

Market Risk Premium 5.00%

As a guide, you will be completing the following table:

Division:	EBIT	Capital	Asset Beta	Equity Beta	Cost of Equity	Cost of Capital	EVA
Healthcare	2,966	24,770	0.88
Aviation	2,882	38,298	1.05
Power	726	23,569	0.59
Renewable Energy	(795)	14,804	1.07