CFIN
5th Edition
ISBN: 9781305661639
Author: Scott Besley, Eugene Brigham
Publisher: Cengage Learning
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Chapter 7, Problem 19PROB
Summary Introduction
The company had a net income of $65,000, interest expense of $40,000 and a marginal tax rate of 35%. Invested capital was $800,000 and average cost of the fund is 12%.
Economic Value Added (EVA) is based on a technique that the earnings generated by the company should be enough to meet the investors funds. Any amount greater than the cost to investors would add to the company’s value. EVA can be calculated using the below equation:
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