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? 

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

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

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

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?

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.

Forgive me but what is the debt payment?

I had assumed this would be the amount you pay to debtors, i.e. interest. This is given as $40M, though, so it seems strange to me that we would be asked to provide it.

I would agree except NEAS said in this thread http://www.neas-seminars.com/discussions/shwmessage.aspx?ForumID=167&MessageID=10577

that accounting income is net of taxes. 

[NEAS: Net income means net of taxes]

For #2, we need to use net income.  I think that's (75-40)*.65, since we're told that earnings are 75, not net income.  Does anyone agree?