Ghan Rail Corporation,whose Tax Rate Is 40%,has Two Sources of Funds

question 9

Multiple Choice

Ghan Rail Corporation,whose tax rate is 40%,has two sources of funds: long-term debt with a market value of $8 000 000 and an interest rate of 8%,and equity capital with a market value of $12 000 000 and a cost of equity of 12%.Ghan Rail has two operating divisions,the Blue division and the Gold division,with the following financial measures for the current year:
$$\begin{array} { | l | r | r | r | } \hline & \text { Total Assets } & \text { Current Liabilities } & \text { Pperating Profit } \\\hline \text { Blue Div. } & \$ 9500000 & \$ 2800000 & \$ 1055000 \\\hline \text { Gold Div. } & \$ 11000000 & \$ 2200000 & \$ 1200000 \\\hline\end{array}$$
What is Economic Value Added (EVA) for the Blue Division?

• A)$433 960
• B)$21 960
• C)$188 600
• D)-$233 400

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