Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
What is the following company's EVA?
The figures are in millions of dollars,
The company’s WACC is 8%.
Transcribed Image Text:Balance sheet
Cash
Other current assets
Non current assets
Total assets
Income statement
Operating income
Interest payment
Income before taxes
Taxes
Net income
5000 Current liabilities
10000 Long-term debt
60000
75000 Equity
5000
500
4500
900
3600
10000
35000
30000
Expert Solution
Step 1
WACC = 8%
To compute EVA (Economic value added)
EVA = NOPAT – (WACC x Capital employed)
NOPAT = Net Operating profit after tax
Tax rate = (900/ 4500) x 100
Tax rate = 20%
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