Question
Asked Dec 6, 2019
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  • A firm has EBIT of $7.5 million, a 33% tax rate, a weighted average cost of capital of 8.95% and total capital (long-term debt and equity) of $55 million. What is their economic value added (EVA)?

 

  1. $102,500
  2. $112,667
  3. $165,500
  4. $3,264,250
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Expert Answer

Step 1

EBIT = $7.5 Million

Tax Rate = 33%

Weighted Average Cost of Capital (WACC) = 8.95%

Total Capital = $55 ...

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EVA =| EBIT x (1–Tax Rate) |–(WACC × Total Capital) =[S7, 500,000 × (1–0.33)]-(8.95%×$55,000, 000) = [S7,500,000 x0.67]– $4.922.500 =S5,025, 000 –- $4,922,500 = $102,500

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