Question

Stratton shipyards has 10 million dollars of sales and six million of operating cost including depreciation the company has 20 million of investor supplied operator Capital that has a cost of capital of 10% what is the firm's economic value-added to get from the company's overall tax rate of 40%

Answer 1

Stratton Shipyards

The firm's economic value-added is:

$0.4 million

Step-by-step explanation:

a) Data and Calculations:

Sales revenue = $10 million

Operating cost = 6 million

Pre-tax Income = $4 million

Income tax (40%) 1.6 million

After tax income $2.4 million

EVA = $2.4 million - ($20 million * 10%)

= $0.4 million

b) Stratton Shipyards Economic Value-Added (EVA) = the Net Operating Profit after Tax (NOPAT) – the product of the weighted average cost of capital (WACC) * capital invested. The EVA shows the real value creation by the company above its cost of capital.