Question: Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last year's results:
Adams Division Jefferson Divison
Net (after-tax) income $ 605,000 $ 315,000
Total capital employed 4,000,000 3,250,000
Washington's actual cost of capital was 12 percent.
Economic Value Added Refer to the information for Washington Company above.
Required: 1. Calculate the EVA for the Adams Division.
2. Calculate the EVA for the Jefferson Division.
3. Conceptual Connection: Is each division creating or destroying wealth?
4. Conceptual Connection: Describe generally the types of actions that Washington's management team could take to increase Jefferson Division's EVA?