Performance Auto Company, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $18,000,000 at an interest rate of 10% and equity capital with a market value of $12,000,000 and a cost of equity of 15%. Applying the same weighted-average cost of capital (WACC) to each division, calculate EVA for each division. ROI, RI, EVA. Performance Auto Company operates a new car division (that sells high-performance sports cars) and a performance parts division (that sells performance-improvement parts forfamily cars). Some division financial measures for 2017 are as follows:HomePage LayoutDataFormulasInsertNew CarDivisionPerformanceParts Division2 Total assets3 Current liabilities4 Operating income5 Required rate of retun$33,000,000$ 6,600,000$ 2,475,00012%$28,500,000$ 8,400,000$ 2,565,00012%

Economic Value Added or EVA is measure of a company's performance financially based on the residual…

Answered: ROI, RI, EVA. Performance Auto Company…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Performance Auto Company, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $18,000,000 at an interest rate of 10% and equity capital with a market value of $12,000,000 and a cost of equity of 15%. Applying the same weighted-average cost of capital (WACC) to each division, calculate EVA for each division.

ROI, RI, EVA. Performance Auto Company operates a new car division (that sells high-
performance sports cars) and a performance parts division (that sells performance-improvement parts for
family cars). Some division financial measures for 2017 are as follows:
Home
Page Layout
Data
Formulas
Insert
New Car
Division
Performance
Parts Division
2 Total assets
3 Current liabilities
4 Operating income
5 Required rate of retun
$33,000,000
$ 6,600,000
$ 2,475,000
12%
$28,500,000
$ 8,400,000
$ 2,565,000
12%

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