Answer the Following Questions Using the Information Below:
Waldorf Company

question 22

Multiple Choice

Answer the following questions using the information below:
Waldorf Company has two sources of funds: long-term debt with a market and book value of $10 million issued at an interest rate of 12%,and equity capital that has a market value of $8 million (book value of $4 million) .Waldorf Company has profit centres in the following locations with the following operating profits,total assets,and current liabilities.The cost of equity capital is 12%,while the tax rate is 25%.
$$\begin{array} { | l | r | r | r | } \hline & \text { Operating Profit } & { \text { Assets } } & \text { Current Liabilities } \\\hline \text { Mildura } & \$ 960000 & \$ 4000000 & \$ 200000 \\\hline \text { Townsville } & \$ 1200000 & \$ 8000000 & \$ 600000 \\\hline \text { Broome } & \$ 2040000 & \$ 12000000 & \$ 1200000 \\\hline\end{array}$$
-What is the EVA for Townsville?

• A)$135 580
• B)$234 000
• C)$220 000
• D)$305 000

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Definitions:

Installment Payment Plan

A financial arrangement that allows a buyer to pay for goods or services over a period of time in several smaller payments.

Bankruptcy

The state of being bankrupt, being legally declared unable to pay debts; a petition to a court by an individual who is stating that he or she cannot pay any debt incurred.

Collection Agency Transaction

A financial activity where a collection agency attempts to recover funds owed by an individual or business.

Outsourcing

An arrangement by which a task, operation, or job that could be performed by employees within a company is instead contracted to another company; generally viewed as contracting out a specific business function to another company rather than having your own company manage that specific work.