Ann Arbor Division of the Michigan Company has the following statistics for its most recent operations: Assets available for use (Market Value) $3,600,000 Assets available for use (Book Value) $2,000,000 Ann Arbor Division's return on investment 25% Ann Arbor Division's residual income 200,000 Return on investment (entire Michigan Company) 20% Refer to Michigan Company. Compute EVA assuming the
cost of capital is 10% and the tax rate is 40%.
a. $ 90,000
b. $ 150,000
c. $0
d. $ (60,000)
D
EVA = After Tax Net Income - (Cost of Capital ? Market Value of Assets)
EVA = (($2,000,000 * .25) ? .60) - (.10 ? $3,600,000)
EVA = $(300,000 - 360,000)
EVA = $(60,000)
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