Question

Gebze Shipyards has $15.0 million in total invested operating capital, and its WACC is 10%. Gebze has the following income statement: Sales $12.0 million Operating costs 6.0 million Operating income (EBIT) $ 6.0 million Interest expense 2.0 million Earnings before taxes (EBT) $ 4.0 million Taxes (20%) 0.8 million Net income $ 3.2 million What is Gebze’s EVA?

Answer 1

Gebze’s Economic Value Added (EVA)

Gebze’s Economic Value Added (EVA) = Net Operating Profit After Tax – Cost of Capital

= [EBIT x (1 – Tax Rate)] - [Invested Capital x WACC]

= [$6,000,000 x (1 – 0.20)] – [$15,000,000 x 0.10]

= [$6,000,000 x 0.80] – [$15,000,000 x 0.10]

= $4,800,000 - $1,500,000

= $3,300,000

“Hence, the Gebze’s Economic Value Added (EVA) will be $3,300,000 or $3.30 Million”