A company has a net EBIT of EUR1bn and has a capital employed (CE) of 10bn EUR. The weighted average cost of capital (WACC) is 12%. Define whether this creates or destroys value. Determine the amount of value created or destroyed. How would you explain to the managers of this company that generates EUR1bn of net EBIT that they are destroying value. What are the driver for this company to create value?.

A company has a net EBIT of EUR1bn and has a capital employed (CE) of 10bn EUR. The weighted average cost of capital (WACC) is 12%. Define whether this creates or destroys value. Determine the amount of value created or destroyed. How would you explain to the managers of this company that generates EUR1bn of net EBIT that they are destroying value. What are the driver for this company to create value?.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter16: Capital Structure Decisions

Section: Chapter Questions

Problem 2MC

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Question

A company has a net EBIT of EUR1bn and has a capital employed (CE) of 10bn EUR. The weighted average cost of capital (WACC) is 12%.

Define whether this creates or destroys value.
Determine the amount of value created or destroyed.
How would you explain to the managers of this company that generates EUR1bn of net EBIT that they are destroying value.
What are the driver for this company to create value?.

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