EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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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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RJS generated $65,000 net income this year. The firm's financial statements also show that its interest expense was $80,000, its marginal tax rate was 35 percent, and its invested capital was $1,200,000. If its average cost of funds is 14 percent, what was RJS's economic value added (EVA) this year? Round your answer to the nearest dollar. Use a minus sign to enter a negative value, if any.
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