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Casey Motors recently reported the following information:
Net income - $475,000
Thx rate 25%
Interest expense - $200,000,
Total invested capital employed - 9 million
After-tax cost of capital - 10%.
What is the company's EVA?

Respuesta :

Tundexi

Company's Economic value added amount is (-$275,000)

Let understand that Economic Value Added is basically, an estimate of the company's economic profit

  • The formulae for deriving Economic Value Added = [tex]NOPAT - {Cost of Capital * Capital employed}[/tex]

Let understand that NOPAT means Net operating profit after tax. NOPAT = EBIT (1 - Tax)

Suppose EBIT = x

EBIT - Interest - Tax = Net Income

(x - 200,000) -  0.25*(x - 200000) = 475,000

x - 200,000 = 475,000/0.75

x = 833333.33

Now, EBIT = $833,333.33

Then we calculate NOPAT = EBIT (1 - Tax)

NOPAT = 833,333.33 * (1 - 0.25)

NOPAT = $625,000

Then, we calculate Economic Value Added

EVA = $625,000 - 0.10*$9,00,0000

EVA = $625,000 - $900,000

EVA = ($275,000)

In conclusion, the amount of the Company's Economic value added is a negative of $275,000.

See similar question & solution here

brainly.com/question/24196860

ripeg1471

Answer:

275,000.025

Explanation:

1. EBT =NI/(1-TR)=475,000/0.75 =633,333.3

2.EBIT=EBT+ interest expense =633,333.3+200,000=833,333.3

3.EVA=EBIT(1-TR)- (WACC* Total invested capital)=833,333.3*0.75 -(0.1

*9,000,000)=624,999.975-900,000=275,000.025

Remark: WACC is  an after-tax cost of capital

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