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	Unlevered beta of business
Cement	$500	$900	0.90
Steel	$500	$600	1.20
Total	$1,000	$1,500

The firm has 100 million shares, trading at $10 a share and faces a marginal tax rate of 40%. The companys 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.