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CarKing is a company in the luxury car industry.To verify its performance, the company is using economic value added (EVA), a managerial technique.
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Question

CarKing is a company in the luxury car industry. To verify its performance,

the company is using economic value added (EVA), a managerial technique. The EVA for the company has been calculated as $202,545. This amount has been determined with the following information.


Marginal tax rate                                                          35%
Cos of debt before tax                                                              11%
Cost of equity                                                             13.5%
Costs capitalized for Development                              25%
Costs capitalized for Research                                     30%
Amortization period                                                  6 years
Operating Income                                                      $445,808
Capital Employed                                                      $1,950,000
Total Development Cost                                           $80,000
Total Research Cost                                                  $120,000
Goodwill impairment loss included in income         $36,500






REQUIRED:


     a)  Assume that R&D costs for the year occurred on Jan 1. What is the capital structure of Car King?
          (Show your work)




     b)  What would be the new EVA amount if capital structure of the company is 70% debt and 30% equity? (Use 4 decimal places)  

Step-by-step answer

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Subject: Business, Management

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