Backhaus Beer Brewers (BBB) just announced that the current fiscal year’s income statement reports its net income to be $1.2 million. BBB’s marginal tax rate is 40 percent, and its interest expense for the year was $1.5 million. The company has $8 million of invested capital, of which 60 percent is debt. In addition, BBB tries to maintain a WACC near 12 percent.
a. Compute the operating income (EBIT) that BBB earned in the current year.
b. What is BBB’s EVA for the current year?
c. BBB has 500,000 shares of common stock outstanding. According to the EVA value you computed in part (b) how much can BBB pay in dividends per share before the value of the firm would start to decrease? If BBB doesn’t pay any dividends, what would you expect to happen to the value of the firm?

  • CreatedNovember 24, 2014
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