We are asked for the after tax debt payment which is .65*40 because of the tax credit of 35% of paid interest we get.

Why when calculating EVA is the answer: 101 - .086(1000)

I understand the idea being 101M was added and we are taking off what the return was using WACC.  My confusions comes from the 101M number.  Shouldnt we only use 75M since that is our net income?

Is the dept pmt +net income = 75-40 + 325 = $360 ?

Since my answers are different from anything on here, I thought I would post. I may be wrong.

E=500M
D=500M
V=Capital=1000M
r_D=.08
r_f=.05
r_m=.07
B(beta)=1
T=.35
Interest=40M
Accounting Income=Net Income=75M

A) After-tax debt payment = after-tax interest = (1-T)Interest
= (1-.35)40 = 26M

B) After-Tax debt payment + Net Income
= 26 + 75 = 101M

C) WACC = r_D(1-T)(D/V) + r_E(E/V)
r_E = r_f+B(r_m-r_f)
r_E = .05+1(.07-.05) = .07
WACC = .08(1-.35)(500/1000) + .07(500/1000)
WACC = .061 = 6.1%

D) EVA = (After-tax interest payment + net income) - (Cost of Capital(WACC) * Total Capital)
= (26 + 75) - (.061 * 1000)
EVA = 40M

Never mind, I agree with evi.

Here is my corrected work
r_m-r_f is market premium therefore.

C) WACC = r_D(1-T)(D/V) + r_E(E/V)
r_E = r_f+B(r_m-r_f)
r_E = .05+1(.07) = .12
WACC = .08(1-.35)(500/1000) + .12(500/1000)
WACC = .086 = 8.6%

D) EVA = (After-tax interest payment + net income) - (Cost of Capital(WACC) * Total Capital)
= (26 + 75) - (.086 * 1000)
EVA = 15M

For part C: I remember from Module 18 the company cost of capital = WACC. With a beta of 1 the company cost of capital would match the market at 12%. This answer doesn't match the others' answers. Am I missing something?