hh.2 [The following information applies to the questions displayed below.]All-Canadian, Ltd., is a multiproduct company with three divisions: Pacific Division, Plains Division, andAtlantic Division. The company has two sources of long-term capital: debt and equity. The interest rate onAll-Canadian's $408 million debt is 9 percent, and the company's combined federal and state income taxrates amount to 30 percent. The cost of All-Canadian's equity capital is 12 percent. Moreover, the marketvalue of the company's equity is $527 million. (The book value of All-Canadian's equity is $438 million, butthat amount does not reflect the current value of the company's assets or the value of intangible assets.)The following data (in millions) pertain to All-Canadian's three divisions,Before-TaxOperatingIncome$194851DivisionPacificPlainsAtlanticCurrentLiabilitiesWeighted-average cost of capital$548TotalAssets$ 64%Check my work300494Required:1. Compute All-Canadian's weighted-average cost of capital (WACC). (Do not round intermediate calculations. Round yourfinal answer to 2 decimal places (i.e., .1234 should be entered as 12.34).)

We need the following details for WACC calculations:The market value of debt: $408 mn.The interest…

Answered: All-Canadian, Ltd., is a multiproduct…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter12: Balanced Scorecard And Other Performance Measures

Section: Chapter Questions

Problem 4PB: Banyan Industries has two divisions, a tax rate of 30%, and a minimum rate of return of 20%....

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All-Canadian, Ltd. 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 All-Canadian’s $400 million debt is 9 percent, and the company’s tax rate is 30 percent. The cost of All-Canadian’s equity capital is 12 percent. Moreover, the market value of the company’s equity is $600 million. (The book value of All-Canadian’s equity is $430 million, but that amount does not reflect the current value of the company’s assets or the value of intangible assets.) The following data (in millions) pertain to All-Canadian’s three divisions. Compute the economic value added (or EVA) for each of the company's three divisions. (Do not round intermediate calculations. Enter your final answers in dollars and not millions.)
All-Canadian, Ltd. 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 All-Canadian’s $400 million debt is 9 percent, and the company’s tax rate is 30 percent. The cost of All-Canadian’s equity capital is 12 percent. Moreover, the market value of the company’s equity is $600 million. (The book value of All-Canadian’s equity is $430 million, but that amount does not reflect the current value of the company’s assets or the value of intangible assets.) The following data (in millions) pertain to All-Canadian’s three divisions. Division Before-Tax OperatingIncome CurrentLiabilities TotalAssets Pacific 14 $6 70 $ $ Plains 45 5 300 Atlantic 48 9 480 Compute the economic value added (or EVA) for each of the company's three divisions. (Do not round intermediate…
The AAA Division has permanent current assets of P50,000 and operating non-current assets of 350,000. It provides annual operating income after tax of P100,000. Its cost of capital is 15% but the minimum required rate of return by the entity is 16%. 1. How much is its current return on investment? 2. How much is its economic value added? 3. How much is its residual income? 4. Assume that the Senna Division is presented by the head office to manage a P60,000 investment option yielding a 20% return on its investment. Should the Division agree to manage this investment opportunity? A. Yes, because the ROI will increase. B. Yes, because the RI and EVA will increase. C. No, because the ROI will decrease. D. No, because the RI and EVA will decrease.
Novus Nyet Company has two divisions: Health Foods and Specialty Metals. Each of these divisions employs debt equal to 30 percent of its total requirements, with equity capital used for the balance. The current borrowing rate is 8 percent, and the company's tax rate is 40 percent. Novus Nyet wishes to establish a minimum return standard for each division based on the risk of that division. This standard then would serve as the transfer price of capital to the division. The company has thought about using the capital asset pricing model in this regard. It has identified two samples of companies, with the following mode-value characteristics: Debt/Totat Capitalization Ratio Tax Rate Beta Health Foods 90 .50 .40 Specialty Metals 1.25 .30 .40 Page 1 of 2 The risk-free rate presently is 6 percent, and the expected return on the market portfolio 11 percent. Using the CAPM approach, what required returns on investment would you recommend for these two divisions?
Ceradyne Mills is a division of lowa Woolen Products. For the most recent year, Ceradyne had net income of $20,400,000. Included in income was interest expense of $1,148,000. The operation's tax rate is 15 percent. Total assets of Ceradyne Mills are $192,700,000, current liabilities are $42,640,000, and $29,520,000 of the current liabilities are noninterest bearing. Calculate NOPAT, invested capital, and ROI for Ceradyne Mills. (Round ROI to 2 decimal places, e.g. 5.25%.) NOPAT tA Invested capital $ ROI %
The Bedding Division of Homestore Corporation had sales of $9,000,000 and operating income of $1,620,000 last year. The total assets of the Bedding Division were $2,500,000, while current liabilities were $310,000. Homestore Corporation's target rate of return is 11%, while its weighted average cost of capital is 9%. The effective tax rate for the company is 25%. What is the Bedding Division's capital turnover? OA. 29 OB. 3.6 OC. 8.1 O D. 5.6 (...)
National Co.’s capital structure consists entirely of long-term liabilities and common equity. The cost of capital for long-term liabilities is 3% while for common equity is 5%. The tax rate applicable is 30%. The weighted average cost of capital of National Co. is 4.13%. What proportion of the company’s capital structure is funded by long-term liabilities? (Format: XX.XX%)
Nataro, Incorporated, has sales of $710,000, costs of $347,000, depreciation expense of $92,000, interest expense of $57,000, and a tax rate of 24 percent. What is the net income for this firm? and a tax rate of 21 percent. What is the net income for this firm? (EBIT= earnings before interest and taxes) (taxable income EBIT-Interest) (Taxes 21% X Taxable Income) Depreciation = ________ Interest = _______ Taxes (21%) = _______
Banyan Industries has two divisions, a tax rate of 30%, and a minimum rate of return of 20%. Division A has a weighted average cost of Capital of 9.5% and is looking at a new project that will generate a profit of $1,200,000 from a machine that costs $4,000,000. Division B has a weighted average cost of capital of 9.5% and is looking at a new project that will generate a profit of $1,350,000 from a machine that costs $5,000.000. A. Calculate the EVA for each of Banyans divisions. B. Calculate the RI for each of Banyans division. C. If Banyan uses EVA to evaluate the projects, which division has the better project and by how much? D. If Banyan uses RI, which division has the better project and by how much? E. What are some of the reasons for the similarity or difference that you found in the use of EVA versus RI?
watson is a division of Bolin Products, Inc. During the most recent year, watson had a net income of $39 million. Included in the income was an interest expense of $3,300,000. The company's tax rate was 40%. Total assets were $475 million, current liabilities were $107,000,000, and $70,000,000 of the current liabilities are noninterest-bearing. What are the invested capital and ROI for watson? Enter your answer in the whole dollar. Round "ROI" answer to two decimal places.
Performance Auto Company, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $18,000,000 at an interest rate of 10% and equity capital with a market value of $12,000,000 and a cost of equity of 15%. Applying the same weighted-average cost of capital (WACC) to each division, calculate EVA for each division.
XYZ Ltd. has an average selling price of Rs 10 per unit; its variable unit costs are Rs. 5 per unit; fixed costs amount to Rs. 1,70,000. It finances all its assets by equity funds. It pays 35 percent tax on its income. ABC Ltd. is identical to XYZ Ltd. except in the pattern of financing. The latter finances its assets 50 percent by equity and 50 percent'by debt, the interest on which amounts to Rs 20,000. Determine the degree of operating, financial and combined leverage at Rs. 7,00,000 sales for both the firms, and interpret the results.

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