Explore BrainMass
Share

Explore BrainMass

    EVA, Computation of Income tax, ROI

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1. The Modern Language Corporation earned $1.6 million on net assets of $20 million. The cost of capital is 11.5%. Calculate the net ROI and EVA. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter "EVA" answer in millions rounded to 1 decimal place.)

    ROI %

    EVA $ million

    2. The table below shows a condensed income statement and balance sheet for Androscoggin Copper's Rumford smelting plant (figures in $ millions). Assume the cost of capital is 9%.
    Income Statement for 2013 Assets, December 31, 2013
    Revenue $ 56.66 Net working capital $ 7.08
    Raw materials cost 18.72
    Operating cost 21.09 Investment in plant and equipment 69.33
    Depreciation 4.50 Less accumulated depreciation 21.01
    ________________________________________ ________________________________________ ________________________________________ ________________________________________
    Pretax income 12.35 Net plant and equipment 48.32
    Tax at 35% 4.32
    ________________________________________ ________________________________________ ________________________________________ ________________________________________
    Net income $ 8.03 Total assets $ 55.40
    ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
    ________________________________________
    a. Calculate the plant's EVA. (Enter your answer in millions rounded to 2 decimal places.)
    EVA $ million

    b. The table above shows, the plant is carried on Androscoggin's books at $48.32 million. However, it is a modern design, and could be sold to another copper company for $95 million. How should this fact change your calculation of EVA? (Negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 2 decimal places.)
    EVA $ million

    3. In 2011 Beta Corporation earned gross profits of $760,000.
    a. Suppose that it is financed by a combination of common stock and $1 million of debt. The interest rate on the debt is 10%, and the corporate tax rate is 35%. How much profit is available for common stockholders after payment of interest and corporate taxes? (Enter your answer in nearest dollars not in millions.)
    Profit $

    b. Now suppose that instead of issuing debt Beta is financed by a combination of common stock and $1 million of preferred stock. The dividend yield on the preferred is 8% and the corporate tax rate is still 35%. How much profit is now available for common stockholders after payment of preferred dividends and corporate taxes? (Enter your answer in nearest dollars not in millions.)
    Profit $

    © BrainMass Inc. brainmass.com October 10, 2019, 7:35 am ad1c9bdddf
    https://brainmass.com/business/accounting/eva-computation-of-income-tax-roi-587716

    Solution Summary

    The solution computes EVA, ROI as well as income tax in a different example where company has debt in 1 scenario and preferred stockholders in another to find what income is available for common stockholders. Attached in Word.

    $2.19