Coptermagic Company Supplies Helicopters to Corporate Clients

Essay

Coptermagic Company supplies helicopters to corporate clients. Coptermagic has two sources of funds: long term debt with a market and book value of $32 million issued at an interest rate of 10%, and equity capital that has a market value of $18 million (book value of $8 million). The cost of equity capital for Coptermagic is 15%, and its tax rate is 30%. Coptermagic has profit centers in four divisions that operate autonomously. The company's results for 2015 are as follows:

Required:
a.Compute Coptermagic's weighted average cost of capital.
b.Compute each division's Economic Value Added.
c.Rank the divisions by EVA.