Question

Book value: Marketible securities: 50,000 Non-operating long-term assets: 20,000 Cash:     130,000 Accounts receivable:      200,000 Inventory:           100,0

Book value:

Marketible securities:

50,000

Non-operating long-term assets:

20,000

Cash:    

130,000

Accounts receivable:     

200,000

Inventory:          

100,000

Operating long-term assets:       

800,000

Accounts payable:          

178,000

Accrued taxes:

100,000

Short-term debt:             

120,000

Long-term debt:              

Par value per bond:        

1,000    

Number of bonds:          

550        

Total book value, long-term debt:            

550,000

Common stock:

Par value per share:        10          

Number of shares:           35,200   352,000

Total book value, common stock:             

Market value:                  

Marketible securities:   

50,000

Non-operating long-term assets:             

25,000

Short-term debt:             

120,000

Long-term debt:              

Market value per bond 950        

Common stock:               

Market value per share 13.50    

Other data:                      

WACCcomp       

0.10

Revenue             

500,000

Fixed costs         

40,000

Variable costs as a % of revenue

0.50

Depreciation     

55,000

Corporate tax rate          

0.40

What is the economic value added (EVA) based on operating capital?

a. $2,000

b. -$2,200*

c. -$2,300

d. $1,500

0 0
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Answer #1

EVA = Net Operating Profit After Tax - (Capital Invested x WACC)

As shown in the formula, there are three components necessary to solve EVA: net operating profit after tax (NOPAT), invested capital, and the weighted average cost of capital (WACC) operating profit after taxes (NOPAT) can be calculated, but can usually be easily found on the corporation's income statement.

The next component, capital invested, is the amount of money used to fund a particular project. We will also need to calculate the weighted-average cost of capital(WACC) if the information is not provided.

The idea behind multiplying WACC and capital investment is to assess a charge for using the invested capital. This charge is the amount that investors as a group need to make their investment worthwhile.

Net Operating Profit After Tax=93000

Capital Invested=902000

EVA = Net Operating Profit After Tax - (Capital Invested x WACC)

=$93000-$90200

=$2800

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