6. XYZ Company earned operating income of $1,500,000 before income taxes. Capital employed equaled $10,000,000, of...

    

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6. XYZ Company earned operating income of $1,500,000 before income taxes. Capital employed equaled $10,000,000, of which $1,000,000 of mortgage bonds paying 8 percent interest, $3,000,000 unsecured bonds paying 9 percent interest, and $6,000,000 common stock with 10 percent risk premium. The rate on long-term treasury bond is 5 percent. The marginal tax rate is 40%. Required: Calculate the economic value added. 6. XYZ Company earned operating income of $1,500,000 before income taxes. Capital employed equaled $10,000,000, of which $1,000,000 of mortgage bonds paying 8 percent interest, $3,000,000 unsecured bonds paying 9 percent interest, and $6,000,000 common stock with 10 percent risk premium. The rate on long-term treasury bond is 5 percent. The marginal tax rate is 40%. Required: Calculate the economic value added.

Answer rating: 100% (QA)

To calculate the economic value added EVA we can use the formula EVA Net Operating Profit After Ta... View the full answer