For 2018, Gourmet Kitchen Products reported $22 million of sales and $19 millionof operating costs (including depreciation). The company has $15 million of total investedcapital. Its after-tax cost of capital is 10%, and its federal-plus-state income tax rate was36%. What was the firm’s economic value added (EVA), that is, how much value did managementadd to stockholders’ wealth during 2018?

Question

For 2018, Gourmet Kitchen Products reported $22 million of sales and $19 million
of operating costs (including depreciation). The company has $15 million of total invested
capital. Its after-tax cost of capital is 10%, and its federal-plus-state income tax rate was
36%. What was the firm’s economic value added (EVA), that is, how much value did management
add to stockholders’ wealth during 2018?

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Economic value added

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