Brewster Company manufactures eldeberry wine. Last year, Brewster earned operating income of $195,000 after income taxes. Capital employed equaled $2.4 million. Brewster is 45% equity and 55% 10-year bonds paying 7% interest. Brewster's marginal tax rate is 40%. The company is considered a fairly risky investment and probably commands a 13-point premium above the 5% rate on long-term treasury bonds. Jonathan Brewster's aunts, Abby and Martha, have just retired, and Brewster is the new CEO of Brewster Company. He would like to improve EVA for the company. Compute EVA under each of the following independent scenarios that Brewster is considering. 1. No changes are made; calculate EVA using the original data.
Brewster Company manufactures eldeberry wine. Last year, Brewster earned operating income of $195,000 after income taxes. Capital employed equaled $2.4 million. Brewster is 45% equity and 55% 10-year bonds paying 7% interest. Brewster's marginal tax rate is 40%. The company is considered a fairly risky investment and probably commands a 13-point premium above the 5% rate on long-term treasury bonds.
Jonathan Brewster's aunts, Abby and Martha, have just retired, and Brewster is the new CEO of Brewster Company. He would like to improve EVA for the company. Compute EVA under each of the following independent scenarios that Brewster is considering.
1. No changes are made; calculate EVA using the original data.
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