Answer the Following Questions Using the Information Below:
Coldbrook Company

question 42

Multiple Choice

Answer the following questions using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%,and equity capital that has a market value of $9 million (book value of $5 million) .Coldbrook Company has profit centres in the following locations with the following operating profits,total assets,and current liabilities.The cost of equity capital is 15%,while the tax rate is 30%.
$$\begin{array} { | l | r | r | r | } \hline & \text { Operating Profit } & { \text { Assets } } & \text { Current Liabilities } \\\hline \text { Darwin } & \$ 815000 & \$ 3750000 & \$ 800000 \\\hline \text { Hobart } & \$ 1100000 & \$ 5000000 & \$ 1200000 \\\hline \text { Newcastle } & \$ 2450000 & \$ 9250000 & \$ 3180000 \\\hline\end{array}$$
-What is the EVA for Darwin?

• A)$305 000
• B)$338 563
• C)$275 500
• D)$255 500

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Definitions:

Financial Stability

The state of being able to withstand economic fluctuations and financial pressures without significant distress or risk of failure.

Carrying Amount

The value at which an asset is recognized on the balance sheet after deducting any accumulated depreciation or amortization.

Relevance

The importance or pertinence of something in relation to a specific matter or context.

Decision Making

The process of selecting the best alternative from several options to achieve a specific goal.