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: E V A = E B I T × ( 1 − T ) − [ ( Average Cost Of Fund ) × ( Invested Capital ) ] w h e r e , E B I T = Earnings before interest and tax

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Chapter 7, Problem 19PROB

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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:

EVA=EBIT×(1−T)−[(Average Cost Of Fund)×(Invested Capital)]where,EBIT=Earnings before interest and tax

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