Question

The table below shows a condensed income statement and balance sheet for Androscoggin Copper’s Rumford smelting...

The table below shows a condensed income statement and balance sheet for Androscoggin Copper’s Rumford smelting plant (figures in $ millions). Assume the cost of capital is 10%.

Income Statement for 2018 Assets, December 31, 2018
Revenue $ 56.96 Net working capital $ 7.05
Raw materials cost 18.69
Operating cost 21.06 Investment in plant and equipment 69.63
Depreciation 4.47 Less accumulated depreciation 21.04
Pretax income $ 12.74 Net plant and equipment $ 48.59
Tax at 21% 2.68
Net income $ 10.06 Total assets $ 55.64

a. Calculate the plant’s EVA. (Enter your answer in millions rounded to 2 decimal places.)


b. As the table above shows, the plant is carried on Androscoggin’s books at $48.59 million. However, it is a modern design, and could be sold to another copper company for $98 million. How should this fact change your calculation of EVA? (Negative answers should be indicated by a minus sign. Enter your answer in millions rounded to 2 decimal places.)

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