Maple Leaf Industries, headquartered in Toronto, is a multiproduct company with three divisions: Pacific Division, Plains Division,

Question:

Maple Leaf Industries, headquartered in Toronto, is a multiproduct company with three divisions: Pacific Division, Plains Division, and Atlantic Division. The company has two sources of long-term capital: debt and equity. The interest rate on Maple Leafâ€™s $400 million debt is 9 percent, and the companyâ€™s tax rate is 30 percent. The cost of Maple Leafâ€™s equity capital is 12 percent. Moreover, the market value of the companyâ€™s equity is $600 million. (The book value of Maple Leafâ€™s equity is $430 million, but that amount does not reflect the current value of the companyâ€™s assets or the value of intangible assets.)

The following data (in millions) pertains to Maple Leafâ€™s three divisions.

Required:
1. Compute Maple Leafâ€™s weighted-average cost of capital (WACC).
2. Compute the economic value added (or EVA) for each of the companyâ€™s three divisions.
3. What conclusions can you draw from the EVAanalysis?

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