Homework Answers
Firm's EVA = ( Net Operating Income After Tax ) - ( Weighted Cost of Capital * Total Invested Capital )
Net Operating Income After Tax = Net Operating Income * ( 1 - tax rate )
= 3,500,000 * ( 1 - 0.25 )
= 3,500,000 * 0.75
= $2,625,000
Therefore, EVA = (2,625,000) - ( 0.07 * 22,000,000 )
= (2,625,000) - (1,540,000)
= $1,085,000
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