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Question - Evelyn Company supplies refrigeration equipment to hotels in the Caribbean. Evelyn Company has two sources of funds: long term debt with a market and book value of $64 million issued at an interest rate of 10%, and equity capital that has a market value of $36 million. The cost of equity capital for Evelyn Company is 12%, and its tax rate is 35%. Evelyn Company has profit centers in four divisions that operate autonomously. The company's results for 2009 are as follows:
Operating Income
Assets
Current Liabilities
St. Lucia
$1,750,000
$11,500,000
$2,500,000
Antigua
2,400,000
9,000,000
3,500,000
Barbados
4,675,000
27,500,000
9,500,000
Required -
i. Compute Evelyn Company weighted average cost of capital.
ii. Compute each division's ROI.
iii. Compute each division's Residual Income.
iv. Compute each division's Economic Value Added (EVA).
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