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Surfit Company, which manufactures surfboards, has been in business for six years. Sam Foster, owner of Surfit, is pleased with the firm’s profit picture and is considering taking the company public (i.e., selling stock in Surfit on the NASDAQ exchange). Data for the past year are as follows:
After-tax operating income |
$ 250,000 |
Total capital employed |
1,060,000 |
Long-term debt (interest at 9%) |
100,000 |
Owner’s equity |
900,000 |
Surfit Company pays taxes at the rate of 35 percent.
Required:
1. Calculate the weighted average cost of capital, assuming that owner’s equity is valued at the average cost of common stock of 12 percent. Calculate the total cost of capital for Surfit Company last year.
2. Calculate EVA for Surfit Company.
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