Purchase Solution

# Golden Gate Construction Associates EVA

Not what you're looking for?

Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two sources of long-term capital: debt and equity. The cost to Golden Gate of issuing debt is the after-tax cost of the interest payments on the debt, taking into account the fact that the interest payments are tax deductible. The cost of Golden Gate's equity capital is the investment opportunity rate of Golden Gate's investors, that is, the rate they could earn on investments of similar risk to that of investing in Golden Gate Construction Associates. The interest rate on Golden Gate's \$90 million of long-term debt is 10 percent, and the company's tax rate is 40 percent. The cost of Golden Gate's equity capital is 15 percent. Moreover, the market value (and book value) of Golden Gate's equity is \$135 million.

Calculate Golden Gate Construction Associates' weighted-average cost of capital.

Refer to the data in the preceding exercise for Golden Gate Construction Associates. The company has two divisions: the real estate division and the construction division. The divisions' total assets, current liabilities, and before-tatx operating income for the most recent year are as follows:

Division Total Assets
Current
Liabilities
Before-Tax
Operating Income
Real estate .................................................................... \$150,000,000 \$9,000,000 \$30,000,000
Construction ................................................................. 90,000,000 6,000,000 27,000,000

Calculate the economic value added (EVA) for each of Golden Gate Construction Associates' divisions.

##### Solution Summary

Your tutorial is attached in Excel. Please click in cells to see computation. Steps to compute EVA are shown.

Solution provided by:
###### Education
• BSc, University of Virginia
• MSc, University of Virginia
• PhD, Georgia State University
###### Recent Feedback
• "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
• "Thank, this is more clear to me now."
• "Awesome job! "
• "ty"
• "Great Analysis, thank you so much"

##### Basics of corporate finance

These questions will test you on your knowledge of finance.

##### Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

##### Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

##### SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

##### Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.