Question

What is the economic value added EVA based on the following information EBIT equals $700 total assets equal $3000 corporate tax rate is 40% WACC comp is 15%

Answer 1

The economic value added (EVA) based on the given information is $150.

The economic value is an economic measure that determines the residual wealth generated by a company from its investments.

The EVA is calculated by deducting the cost of capital from its operating profit.

EBIT = $700

Total assets = $3,000

Corporate tax rate = 40%

WACC = 15%

Interest or cost of capital = $450 ($3,000 x 15%)

Earnings after interest = $250 ($700 - $450)

Corporate tax = $100 (250 x 40%)

Economic Value Added = $150 ($250 - $100)

Thus, we can conclude that the EVA is $150.