Coptermagic Company Supplies Helicopters to Corporate Clients Required:
A

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:
$$\begin{array} { | l | r | r | r | } \hline & { \begin{array} { c } \text { Operating } \\\text { Income }\end{array} } & { \text { Assets } } & { \begin{array} { c } \text { Current } \\\text { Liabilities }\end{array} } \\\hline \text { New York } & \$ 1,750,000 & \$ 11,500,000 & \$ 2,500,000 \\\hline \text { Chicago } & 2,400,000 & 9,000,000 & 3,500,000 \\\hline \text { Dallas } & 4,675,000 & 27,500,000 & 9,500,000 \\\hline \text { Los Angeles } & 4,200,000 & 25,000,000 & 8,000,000 \\\hline\end{array}$$ Required:
a.Compute Coptermagic's weighted average cost of capital.
b.Compute each division's Economic Value Added.
c.Rank the divisions by EVA.