T-Mobile 60% 9:34 PM moodle-2017-2018.fullerton.edu 1 of 1 Handout Problem You have been asked to evaluate the quality of investments at Gardena Inc., a firm that operates in two businesses cement and steel. You have been provided the following information on the businesses: Book Value Market Value Cement Steel Total $900 $600 $1,500 $500 0.90 $500 1.20 $1,000 The firm has 100 million shares, trading at $10 a share and faces a marginal tax rate of 40%. The company's bonds have an A rating and a default spread of 2%. The riskfree rate is 4% and the equity risk premium is 5%. a. Estimate the cost of capital for the company b. Gardena generated $ 100 million in after-tax operating income in the most recent year, estimate the economic value added (EVA) of the company c. Gardena generated $75 million coming from the cement business and $25 million from steel. Assuming that the book values of assets did not change over the last year, estimate the economic value added (EVA) of each business separately T-Mobile 60% 9:34 PM moodle-2017-2018.fullerton.edu 1 of 1 Handout Problem You have been asked to evaluate the quality of investments at Gardena Inc., a firm that operates in two businesses cement and steel. You have been provided the following information on the businesses: Book Value Market Value Cement Steel Total $900 $600 $1,500 $500 0.90 $500 1.20 $1,000 The firm has 100 million shares, trading at $10 a share and faces a marginal tax rate of 40%. The company's bonds have an A rating and a default spread of 2%. The riskfree rate is 4% and the equity risk premium is 5%. a. Estimate the cost of capital for the company b. Gardena generated $ 100 million in after-tax operating income in the most recent year, estimate the economic value added (EVA) of the company c. Gardena generated $75 million coming from the cement business and $25 million from steel. Assuming that the book values of assets did not change over the last year, estimate the economic value added (EVA) of each business separately