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Tom and Jerry are both managers of sales teams at Flounder Corp., a furniture company whose most popular item is a tweed couch. Tom and
Tom and Jerry are both managers of sales teams at Flounder Corp., a furniture company whose most popular item is a tweed couch. Tom and Jerry are very competitive and each attempt to outperform one another every year. Currently, Tom's department has better metrics, which has resulted in larger bonuses for Tom and his team. Flounder Corp. evaluates both departments based upon each team's respective return on investment and economic value added. The departments reported the following financial data during the most recent year: It should be noted that Flounder uses average operating assets as its definition of investment, and it has a minimum required rate of return of 8.72% and a tax rate of 22%. Flounder has used a variety of ways to acquire capital and has the current makeup: proportion of equity is 38%, the equity rate is 6.5%, the proportion of debt is 62%, and the debt rate is 9.3%. Use this information to answer the following questions. Determine the weighted-average cost of capital, residual income, and economic value added (EVA) for each department? (Do not round intermediate calculations. Round answers to 2 decimal places, e.g. $15.25 or 15.25%.) Overall, which department had the best performance
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