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How to do question 4 ? Thank You voor has a required rate of return of 8% on believes in evaluating pe biual ncommace of
How to do question 4 ? Thank You
voor has a required rate of return of 8% on believes in evaluating pe biual ncommace of the property/casualty division: A. Hamilton Corp. is a reinsurance and financial services co the performance of its standalone divisions using financi year ended December 31,2013, Hamilton's CFO receine ves in evaluating performance and financial services company. Hamilton strongly s using financial metrics such as ROI and i213, Hamilton's CFO received the following information about the performance of the pro Sales revenues Operating income Total assets Current liabilities Debt (interest rate: 6.25%) Common equity $1,200,000 200,000 ,250,000 250,000 600,000 00,000 purposes of divisional performance evaluation, Hamilton defines investment as total assets and For the income as operating income that is, income before interest and taxes The firm pays a flat rate of 20% in taxes on its income 1. What was the net income after taxes of the property/casualty division? 2. What was the division's ROI for the year? Based on Hamilton's required rate of return of 10%, what was the property/casualty division's residual income for 2013? Hamilton's CFO has heard about EVA and is curious about whether it might be a better measure to use for evaluating division managers. Hamilton's four divisions have similar risk characteristics. Hamilton's debt trades at book value while its equity has a market value approximately twice that of its book value. The company's cost of equity capital is 12%. Calculate each of the following components for the property/casualty division, as well as the final EVA figure: a. Net operating profit after taxes b. Weighted-average cost of capital c. Investment, as measured for EVA calculations 4. of EVAStep by Step Solution
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