Estimate the return on capital

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Reference no: EM13535154

Everlast Batteries Inc. has hired you as a consultant. The firm had after-tax operating earnings in 1998 of $180 million, net income of $100 million and it paid a dividend of $50 million. The book value of equity at the end of 1998 was $1.25 billion and the book value of debt was $350 million. The firm raised $50 million of new debt during 1998. The market value of equity at the end of 1998 was twice the book value of equity and the market value of debt was the same as the book value of debt. The firm has a cost of equity of 12% and an after-tax cost of debt of 5%.

a. Estimate the return on capital earned by Everlast Batteries

b. Estimate the cost of capital earned by Everlast Batteries

c. Estimate the economic value added by Everlast Batteries

Reference no: EM13535154

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