Your company has the debt-to-equity breakdown below. The cost of the equity is 5%, and the...

 

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Your company has the debt-to-equity breakdown below. The cost of the equity is 5%, and the cost of the debt is 15%. The tax rate is 20%. Cost of Capital Proportion of Total Assets Equity 10% 40% Debt 15% 60% 1. What is your company's Weighted Average Cost of Capital (WACC)? [Hint: You need to calculate the after-tax cost of debt first] 2. Your company's Employee Relations Division has $1,500,000 in total assets, which is the total capital employed by this division. The Earnings Before Interest and Tax (EBIT) of the Employee Relations Division is $200,000. Given the 20% tax rate, what is the Economic Value Added (EVA) for the Employee Relations Division? 3. Is the Employee Relations Division adding to the economic value of this company? Your company has the debt-to-equity breakdown below. The cost of the equity is 5%, and the cost of the debt is 15%. The tax rate is 20%. Cost of Capital Proportion of Total Assets Equity 10% 40% Debt 15% 60% 1. What is your company's Weighted Average Cost of Capital (WACC)? [Hint: You need to calculate the after-tax cost of debt first] 2. Your company's Employee Relations Division has $1,500,000 in total assets, which is the total capital employed by this division. The Earnings Before Interest and Tax (EBIT) of the Employee Relations Division is $200,000. Given the 20% tax rate, what is the Economic Value Added (EVA) for the Employee Relations Division? 3. Is the Employee Relations Division adding to the economic value of this company?