The company had a net income of $1,200,000, interest expense of $1,500,000 and a marginal tax rate of 40%. Invested capital was $8,000,000 and average cost of the fund is 10%. 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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Answer 1

Question

Chapter 7, Problem 20PROB

Summary Introduction

The company had a net income of $1,200,000, interest expense of $1,500,000 and a marginal tax rate of 40%. Invested capital was $8,000,000 and average cost of the fund is 10%.

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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Answer 2

Question

Chapter 7, Problem 20PROB

Summary Introduction

The company had a net income of $1,200,000, interest expense of $1,500,000 and a marginal tax rate of 40%. Invested capital was $8,000,000 and average cost of the fund is 10%.

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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Check out a sample textbook solution

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Answer 3

Question

Chapter 7, Problem 20PROB

Summary Introduction

The company had a net income of $1,200,000, interest expense of $1,500,000 and a marginal tax rate of 40%. Invested capital was $8,000,000 and average cost of the fund is 10%.

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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Answer 4

Question

Chapter 7, Problem 20PROB

Summary Introduction

The company had a net income of $1,200,000, interest expense of $1,500,000 and a marginal tax rate of 40%. Invested capital was $8,000,000 and average cost of the fund is 10%.

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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Answer 5

Chapter 7, Problem 20PROB

Summary Introduction

The company had a net income of $1,200,000, interest expense of $1,500,000 and a marginal tax rate of 40%. Invested capital was $8,000,000 and average cost of the fund is 10%.

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

Answer 6

Chapter 7, Problem 20PROB

Summary Introduction

The company had a net income of $1,200,000, interest expense of $1,500,000 and a marginal tax rate of 40%. Invested capital was $8,000,000 and average cost of the fund is 10%.

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

Answer 7

Chapter 7, Problem 20PROB

Summary Introduction

The company had a net income of $1,200,000, interest expense of $1,500,000 and a marginal tax rate of 40%. Invested capital was $8,000,000 and average cost of the fund is 10%.

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

Answer 8

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Answer 9

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Answer 11

Ch. 7 - Prob. 1PROB Ch. 7 - Prob. 2PROB Ch. 7 - Prob. 3PROB Ch. 7 - Prob. 4PROB Ch. 7 - Prob. 5PROB Ch. 7 - Prob. 6PROB Ch. 7 - Prob. 7PROB Ch. 7 - Prob. 8PROB Ch. 7 - Prob. 9PROB Ch. 7 - Prob. 10PROB

Solution Summary: The author explains that the company had a net income of 1,200,000, interest expense, and marginal tax rate of 40%. Economic Value Added (EVA) is based on the technique that earnings generated by the firm should be

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