Lumber corporation is a private company and the managers want to know how much of economic value has been added during the current year . So they decided to use EVA to measure the financial performance . The company provided the management accountant department with the following financial data found in the table below:

Current liabilities

Current Assets

Long term liabilities [Bond Payable]

Equity

Research & development

Training expenses

Tax rate

Net income

Sales

Cogs

Interest paid on debt

Risk free rate

Risk premium

Assume that current liabilities are not interest bearing

$

65,300

25%

185,200

150,000

25,000

13,000

25%

45,500

76,200

33,500

17,000

6%

6.5%

obligation

Cost of equity is government bond rate + risk premium

REQUIRED

1. Calculate tax, interest expense and EBIT (operating income)

2. Calculate the EBIT after tax.

3. Calculate the total assets.

4. Calculate total capital employed {TCE}.

5. What is the WACC of the company?

6. Calculate the economic value added [EVA]

7. What will happen to the share if a company has negative EVA for a

while? Why?

8. Why do we use WACC instead of cost of equity only [Re]?