Requirement:

Windsor s CFO has heard about EVA and is curious about whether it might be a better measure to use for evaluating division managers. Windsors long term debt trades at book value, with interest rate of 10%, while its equity has a market value of $1,200,000. The companys cost of equity capital is 12%. Windsors income tax rate is 40%. Calculate each of the following components of EVA for the company, as well as the final EVA figure:

a. Weighted-average cost of capital

c. Investment, as measured for EVA calculations

Financial data for Windsor, Inc. for last year appear below: Windsor, Inc. Statements of Financial Position Beginning Balance Ending Balance ..... 30 Assets: Cash. Accounts receivable... Inventory.... ... Plant and equipment (net Investment in Pine Company ................ Land (undeveloped)..... ******* ******** Total assets. .......... $ 250,000 120,000 230,000 20.000 220,000 30,000 $1,670,000 $260.000 135.000 205,000 380,000 250.000 30.000 $1,660,000 Liabilities and owners' equity Accounts payable ......... Long-term debt ..... Owners' equity ............. Total liabilities and owners equity............ 160.000 800,000 710,000 $1.670,000 140.000 800,000 720000 $1,660,000 ter Windsor, Inc. Income Statement $1.750,000 70.000 280.000 Sales..... Less operating expenses... Net operating income. Less interest and taxes: Interest expense...... Tax expense..... Net income .... $96,000 170.000 166,000 $ 114,000 The company paid dividends of $104,000 last year. The "Investment in Pine Company" on the statement of financial position represents an investment in the stock of another company. Required