Here are data on two firms: Equity ($ million) Debt ($ million) ROC (%) Cost of Capital (%)...
Question:
Here are data on two firms:
Equity ($ million) Debt ($ million) ROC (%) Cost of Capital (%)
Acme 120 80 17 11
Apex 400 200 13 12
a-1. Calculate the higher economic value added? (Do not round intermediate calculations. Enter your answers in millions)
For Acme = ? For Apex = ?
a-2. Which firm has the higher economic value added?
Acme OR Apex?
b-1. Calculate the higher economic value added per dollar of invested capital? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
For Acme = ? For Apex = ?
b-2. Which has higher economic value added per dollar of invested capital?
Acme OR Apex?
Cost of Capital:
When a company issues various securities to raise capital and invest in the fixed assets of the business, the investors purchase those securities and become either shareholders if they purchase shares or bondholders if they purchase bonds. The minimum return that they expect on their investment in these securities is nothing but the cost of capital for the company.