In the following table, identify the order of each step involved in calculating a company’s EVA....
In the following table, identify the order of each step involved in calculating a company’s EVA.
| EVA Step | Order |
|---|---|
| Identify how much capital the company has invested (spent). | |
| Multiply capital used by the cost of capital. | |
| Determine the cost (rate) paid for capital. | |
| Calculate net operating profit after taxes (NOPAT). | |
| Subtract the total dollar cost of capital from net profit after taxes. |
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In the following table, identify the order of each step involved
in calculating a company’s EVA....
Question 3: Economic value-added (EVA). Net operating profit before taxes is $800. Total assets (invested capital)...
Question 3: Economic value-added (EVA). Net operating profit before taxes is $800. Total assets (invested capital) are $9,500, and current liabilities are $1,200. The weighted average cost of capital (WACC) is 9%. The tax rate is 20%. Compute the economic value added (EVA). NOPAT = $ EVA = $ (if you get a negative number, enter it with a minus sign, i.e., -100 not ($100))
Build a Model: Free Cash Flows, EVA, and MVABegin with the partial model in the file...
Build a Model: Free Cash Flows, EVA, and MVABegin with the partial model in the file Ch06 P15 Build a Model.xls on the textbook’s Web site.a. Using the financial statements shown below for Lan & Chen Technologies, calculate net operating working capital, total net operating capital, net operating profit after taxes, free cash flow, and return on invested capital for 2015. (Hint: Start with the partial model in the file and report all dollar figures in thousands to reduce clutter.)b....
Using the change in Westem G&E's EVA as the decision criterion, which type of investment recommendation...
Using the change in Westem G&E's EVA as the decision criterion, which type of investment recommendation should you make to your clients? Company Growth and Performance Metrics Percentage Change Metric Year 2 Year 1 General Metrics A hold recommendation A sell recommendation A buy recommendation Sales Net income Net cash flow (NCF) Net operating working capital (NOWC) Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) Market price per share $8,400,000...
Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Inc., had after-tax operating...
Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Inc., had after-tax operating income last year of $1,195,000. Three sources of financing were used by the company: $2 million of mortgage bonds paying 4 percent interest, $5 million of unsecured bonds paying 6 percent interest, and $10 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 3 percent. Ignacio, Inc., pays a...
Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Inc., had after-tax operating inco...
Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Inc., had after-tax operating income last year of $1,196,500. Three sources of financing were used by the company: $1 million of mortgage bonds paying 4 percent interest, $5 million of unsecured bonds paying 6 percent interest, and $11 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 3 percent. Ignacio, Inc., pays a...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $185,000 after...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $185,000 after income taxes. Capital employed equaled $2.3 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 7 percent interest. Brewster's marginal tax rate is 40 percent. The company is consi dered a fairly risky investment and probably commands a 12-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster's aunts, Abby and Martha, have just retired, and Brewster is...
Last year Cole Furnaces had $4 million in operating income (EBIT). The company had a net...
Last year Cole Furnaces had $4 million in operating income (EBIT). The company had a net depreciation expense of $1 million and an interest expense of $1 million; its com-bined federal and state corporate tax rate is 25%. The company has $14 million in operat-ing current assets and $4 million in operating current liabilities; it has $15 million in net plant and equipment. It estimates that it has an after-tax cost of capital of 10%. Assume that Cole’s only noncash...
Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains...
Washington Company has two divisions: the Adams Division and the
Jefferson Division. The following information pertains to last
year's results:
Adams Division Jefferson Division
Net (after-tax) income $611,050 $359,100
Total capital employed 4,720,000 3,672,500
Washington's actual cost of capital was 11%.
Required:
1. Calculate the EVA for the Adams Division. If required, enter
a negative EVA as a negative number by entering your answer with
the minus sign.
$
2. Calculate the EVA for the Jefferson Division. If required,
enter...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $194,000 after...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $194,000 after income taxes. Capital employed equaled $2.6 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 7 percent interest. Brewster's marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 13-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster's aunts, Abby and Martha, have just retired, and Brewster is the...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $188,000...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $188,000 after income taxes. Capital employed equaled $2.3 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 7 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 12-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the...
Question 3: Economic value-added (EVA). Net operating profit before taxes is $800. Total assets (invested capital) are $9,500, and current liabilities are $1,200. The weighted average cost of capital (WACC) is 9%. The tax rate is 20%. Compute the economic value added (EVA). NOPAT = $ EVA = $ (if you get a negative number, enter it with a minus sign, i.e., -100 not ($100))
Build a Model: Free Cash Flows, EVA, and MVABegin with the partial model in the file Ch06 P15 Build a Model.xls on the textbook’s Web site.a. Using the financial statements shown below for Lan & Chen Technologies, calculate net operating working capital, total net operating capital, net operating profit after taxes, free cash flow, and return on invested capital for 2015. (Hint: Start with the partial model in the file and report all dollar figures in thousands to reduce clutter.)b....
Using the change in Westem G&E's EVA as the decision criterion, which type of investment recommendation should you make to your clients? Company Growth and Performance Metrics Percentage Change Metric Year 2 Year 1 General Metrics A hold recommendation A sell recommendation A buy recommendation Sales Net income Net cash flow (NCF) Net operating working capital (NOWC) Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) Market price per share $8,400,000...
Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Inc., had after-tax operating income last year of $1,196,500. Three sources of financing were used by the company: $1 million of mortgage bonds paying 4 percent interest, $5 million of unsecured bonds paying 6 percent interest, and $11 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 3 percent. Ignacio, Inc., pays a...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $185,000 after income taxes. Capital employed equaled $2.3 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 7 percent interest. Brewster's marginal tax rate is 40 percent. The company is consi dered a fairly risky investment and probably commands a 12-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster's aunts, Abby and Martha, have just retired, and Brewster is...
Washington Company has two divisions: the Adams Division and the
Jefferson Division. The following information pertains to last
year's results:
Adams Division Jefferson Division
Net (after-tax) income $611,050 $359,100
Total capital employed 4,720,000 3,672,500
Washington's actual cost of capital was 11%.
Required:
1. Calculate the EVA for the Adams Division. If required, enter
a negative EVA as a negative number by entering your answer with
the minus sign.
$
2. Calculate the EVA for the Jefferson Division. If required,
enter...
Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $194,000 after income taxes. Capital employed equaled $2.6 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 7 percent interest. Brewster's marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 13-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster's aunts, Abby and Martha, have just retired, and Brewster is the...
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