If a business unit generated $3,600,000 in BEFORE TAX PROFIT and had invested capital of $18,000,000 BUT had excellent terms with its suppliers so had CREDITORS of $2,000,000 and the Weighted Average Cost of Capital (WACC) for this business is 16%. Calculate the Economic Value Add (EVA) for this business unit and select which of the following is correct. (Assume a tax rate of 30%)
Sub : Finance
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If a business unit generated $3,600,000 in BEFORE TAX PROFIT and had invested capital of $18,000,000 BUT had excellent terms with its suppliers so had CREDITORS of $2,000,000 and the Weighted Average Cost of Capital (WACC) for this business is 16%. Calculate the Economic Value Add (EVA) for this business unit and select which of the following is correct. (Assume a tax rate of 30%)
Positive $40,000 - performance is acceptable because EVA is greater than zero and therefore adding value
b.
$2,520,000 Acceptable because EVAt is greater than zero
c.
Negative $40,000 unacceptable because EVA is less than zero
d.
$2,560,000 acceptable because EVA is greater than zero
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