Cordelia Is a Machine Operator for Forever Twenty-Five and Specifically

Multiple Choice

Cordelia is a machine operator for Forever Twenty-Five and specifically works on handbags. Forever Twenty-Five would like to begin offering tie-dyed backpacks. In addition to a new product, Forever Twenty-Five will also need to purchase a piece of equipment that is able to stretch and then tie-dye the fabric for the backpack. Cordelia has priced out two different machines. The first will cost $5,674, generate $1,560 of sales, and will incur $992 of operating expenses. The second will cost $6,782, generate $1,733 of sales, and will incur $1,020 of operating expenses. The company has Weighted Average Cost of Capital (WACC) of 6.1% and a Required Rate of Return of 7.2%. Forever Twenty-Five has a current tax rate of 22%. What will the Economic Value Added (EVA) be for the second machine? (Do not round intermediate calculations.)

A) $96.93
B) $142.44
C) $299.30
D) $413.70