Answer the Following Questions Using the Information Below:
Waldorf Company

question 51

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 $5 million issued at an interest rate of 12%, and equity capital that has a market value of $4 million (book value of $2 million) . Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 25%.
$$\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { St. Louis } & \$ 480,000 & \$ 2,000,000 & \$ 100,000 \\\hline \text { Cedar Rapids } & \$ 600,000 & \$ 4,000,000 & \$ 300,000 \\\hline \text { Wichita } & \$ 1,020,000 & \$ 6,000,000 & \$ 600,000 \\\hline\end{array}$$
-What is the EVA for Wichita?

• A) $225,000
• B) $765,000
• C) $207,180
• D) $557,820

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Definitions:

Current Rate Method

An accounting method for translating foreign currency financial statements where all current-year items are translated at the present exchange rate.

Ending Inventory

The total value of goods available for sale at the end of an accounting period.

Average Cost

An accounting method that calculates the cost of goods sold and ending inventory based on the weighted average of all units purchased or manufactured.

Depreciation Expense

Expense recorded to allocate the cost of a tangible asset over its useful life.