Question

Consider this case: Last year, Jackson Tires reported net sales of $80 million and total operating costs (including depreciation) of $52 million. Jackson Tires has $115 million of investor-supplied capital, which has an after-tax cost of 7.5%. If Jackson Tire's tax rate is 40%, how much value did it's management create or lose for the firm during the year?

A) 39.38 million

B) 2.66 million

C) 60.38 million

D) 8.18 million

Answer 1

D) 8.18 million

Step-by-step explanation:

EBIT=80-52

=$28 million

EVA=net operating profit after tax-(capital invested×WACC)

=$28 m (1-0.4)-($115 m ×.075)

=$8.18 million