Do I have this set-up correctly? 3-11 EVA For 2018, Gourmet Kitchen Products reported 22,000,000 of sales and 19,000,000 of operating costs (including depreciation). The company has 15,000,000 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 stock- holders wealth during 2018? EVA= Net Operating profit after taxes (NOPAT)- Annual dollar cost of capital * Average Cost of Capital Sales- Operating Costs= Net operating profit after taxes 22,000,000- 19,000,000= 3,000,000 Total amount of Invested Capital * After Tax cost of capital= Annual Dollar cost of Capital 15,000,000 * 10%= 1,500,000 EVA= 3,000,000-1,500,000 * (1- Tax Rate) 1,500,000 * (0.64)= 960,000 added to stockholder's wealth
Do I have this set-up correctly?
3-11 EVA
For 2018, Gourmet Kitchen Products reported 22,000,000 of sales and 19,000,000 of operating costs (including
EVA=
Sales- Operating Costs= Net operating profit after taxes
22,000,000- 19,000,000= 3,000,000
Total amount of Invested Capital * After Tax cost of capital= Annual Dollar cost of Capital
15,000,000 * 10%= 1,500,000
EVA= 3,000,000-1,500,000 * (1- Tax Rate)
1,500,000 * (0.64)= 960,000 added to stockholder's wealth
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
