Herbal Resources is a small but profitable producer of dietary supplements for pets. This is not a high-tech business, but Herbal's earnings have averaged around $1.2 million after tax,
Table 12.5
Condensed financial statements for the Rumford smelting plant. See Problem 14 (figures in $ millions).
Income Statement for 2011 |
| Assets, December 31,2011 |
|
Revenue | $56.66 | Net working capital | $ 7.08 |
Raw materials cost | 18.72 |
|
|
Operating cost | 21.09 | Investment in plant and equipment | 69.33 |
Depreciation | 4.50 | Less accumulated depreciation | 21.01 |
Pretax income | 12.35 | Net plant and equipment | 48.32 |
Tax at 35% | 4.32 |
|
|
Net income | $ 8.03 | Total assets | $55.40 |
largely on the strength of its patented enzyme for making cats nonallergenic. The patent has eight years to run, and Herbal has been offered $4 million for the patent rights.
Herbal's assets include $2 million of working capital and $8 million of property, plant, and equipment. The patent is not shown on Herbal's books. Suppose Herbal's cost of capital is 15%. What is its EVA?
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