BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

EVA For 2015, Everyday Electronics reported $22 5 million of sales and $18 million of operating costs (including depreciation). The company has $15 million of total invested capital. Its after-tax cost of capital is 9%, and its federal-plus-state income tax rate was 35%. What was the firm’s economic value added (EVA), that is, how much value did management add to stockholders’ wealth during 2015?

Summary Introduction

To compute: The economic value added for Company E.

Economic Value Added (EVA): It is a measure along with market value added, to evaluate management’s performance. It considers the opportunity costs of capital invested in the business and the net operating profit generated by the business.

Explanation

Determine the economic value added

Given,

Net operating income is $4.5 million (working note).

Income tax rate is 35%

Total invested capital $15 million.

After tax percentage cost of capital is 9%.

Formula to compute economic value added,

Economic Value Added=[Operating Income(1Tax Rate)Invested Capital×After Tax Percentage Cost of Capital]

Substitute $4.5 million for operating income, 35% for tax rate, $15 million for invested capital and 9% for after tax percentage cost of capital

Economic Value Added=[$4.5million(10.35)$15million×0

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What are three potential flaws with the regular payback method? Docs the discounted payback method correct all ...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Define the term marketing

MKTG 12:STUDENT ED.-TEXT

What methods do businesses use to forecast sales?

Foundations of Business (MindTap Course List)