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Here are data on two firms.

Equity Debt ($ million) ($ million) 300 150 1,500 500 ROC (%) 17% 15% Cost of Capital (%) 9% Acme Apex 10% a-1. Calculate the

b-2. Which has the higher economic value added per dollar of invested capital?

  • Acme

  • Apex
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Answer #1

EVA=(ROC-Cost of capital)*(Debt+Equity)

EVA per dollar of invested capital=EVA/(Debt+Equity)

1.
=(17%-9%)*(300+150)=36

2.
=(15%-10%)*(1500+500)=100

3.
Apex

4.
=36/(300+150)=0.08

5.
=100/(1500+500)=0.05

6.
Acme

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