Question

Barton Industries has operating income for the year of $3,500,000 and a 36% tax rate. Its total invested capital is $20,000,000 and its after-tax percentage cost of capital is 8%. What is the firm’s EVA?

Answer 1

Economic value added = $640,000

Step-by-step explanation:

given data

operating income = $3,500,000

tax rate = 36% = 0.36

total invested capital = $20,000,000

cost of capital = 8% = 0.08

solution

we get here EVA ( Economic value added) that is express as

Economic value added = Net Operating Profit After Taxes - Investment × WACC ..................1

here net Operating Profit After Taxes = $3,500,000 × (1 - 0.36)

net Operating Profit After Taxes = $2,240,000

so from equation 1

Economic value added = $2,240,000 - $20,000,000 × 0.08

Economic value added = $2,240,000 - $1,600,000

Economic value added = $640,000