Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6648a8ded990c_8546648a8de6abf5.jpg)
Transcribed Image Text:
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 $70 million of long-term debt is 9 percent, and the company's tax rate is 40 percent. The cost of Golden Gate's equity capital is 10 percent. Moreover, the market value (and book value) of Golden Gate's equity is $83 million. The company has two divisions: the real estate division and the construction division. The divisions' total assets, current liabilities, and before tax operating Income for the most recent year are as follows: Division Real estate Construction Total Assets $ 94,000,000 60,000,000 Current Liabilities $ 5,600,000 3,200,000 Before-Tax Operating Income $ 21,000,000 18,200,000 Required: Calculate the economic value added (EVA) for each of Golden Gate Construction Associates' divisions. Note: Round your weighted-average cost of capital to 3 decimal places (i.e. .123). Enter your answers in millions rounded to 3 decimal places (i.e. $1,234,000 should be entered as $1.234). Division Real Estate Construction Economic value added (in millions) 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 $70 million of long-term debt is 9 percent, and the company's tax rate is 40 percent. The cost of Golden Gate's equity capital is 10 percent. Moreover, the market value (and book value) of Golden Gate's equity is $83 million. The company has two divisions: the real estate division and the construction division. The divisions' total assets, current liabilities, and before tax operating Income for the most recent year are as follows: Division Real estate Construction Total Assets $ 94,000,000 60,000,000 Current Liabilities $ 5,600,000 3,200,000 Before-Tax Operating Income $ 21,000,000 18,200,000 Required: Calculate the economic value added (EVA) for each of Golden Gate Construction Associates' divisions. Note: Round your weighted-average cost of capital to 3 decimal places (i.e. .123). Enter your answers in millions rounded to 3 decimal places (i.e. $1,234,000 should be entered as $1.234). Division Real Estate Construction Economic value added (in millions)
Expert Answer:
Posted Date:
Students also viewed these accounting questions
-
Mr. CFE is the sole proprietor of a hardware store called, The CFE Shop. Mr. CFE has decided to incorporate the business but wishes to minimize any income inclusions on the transfer of his business...
-
Can a government employee state a claim for a violation of the constitutional right to privacy when she was required, as a job applicant, to sign an affidavit stating that she had not used tobacco...
-
Carter Corporation recently announced a bonus plan to be awarded to the manager of the most profitable division. The three division managers are to choose whether ROI or RI will be used to measure...
-
Which theory emphasizes the importance of cooperation and participation in the workplace? A. Chaos Theory. B. Systems Theory. C. Classical Theory. D. Neoclassical Theory.
-
On January 1, 2014, Margaret Avery Co. borrowed and received $400,000 from a major customer evidenced by a zero-interest-bearing note due in 3 years. As consideration for the zero-interest-bearing...
-
Q12.14 Finney Inc. is a construction company specializing in commercial real estate projects. Finney has contracted with the Perry Companies to build an office building for $20 million. Finney esti-...
-
mer Joe uses 9.5 bags of fertilizer for the pumpkin field. He s 0.7 more bags of fertilizers for the tomato field. Compar he tomato field, he uses 1.3 less bags of fertilizers for the bage field. How...
-
Choose one item that you use each dayanything from a toothbrush to your favorite soda to an automobile. Required: Research the company that produces this item online to find out as much information...
-
Which of the following would not be treated as a product cost under GAAP! a. Direct materials. b. Manufacturing supervisor's salary. c. Sales commissions. d. All of the above are product costs.
-
Suppose you are trying to decide whether to sell your accounting book at the end of the semester or keep it for a reference book in future courses. If you decide to keep the book, the money you would...
-
For each equation in Problems 7-18, find three ordered pairs that satisfy the equation, and then use this information to graph each line. \(y=x+1 \)
-
Suppose you have decided that you would like to purchase a new home in five years. To do this, you will need a down payment of approximately $20,000, which means that you need to save $350 each month...
-
K If f(x) = 1 2 1 compute f(2) and f'(2). f(2)= (Simplify your answer.)
-
1. Following are information about Alhadaf Co. Cost incurred Inventory Purchases Sales Adverting expense Salary Expense Depreciation Beginning Inventory Ending Inventory Amount 118,000 350.000 90,000...
-
When a market consists of a single buyer, we say _________ exists.
-
If labor productivity falls, then the demand curve for labor will shift to the _________.
-
If new workers enter the labor force, the labor supply curve will shift to the _________.
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App