Given an after-tax operating profit of $185,000, a weighted average cost of capital (WACC) of 11%, total assets valued at $485,000, and total liabilities amounting to $367,000, what is the Economic Value Added (EVA)?

Multiple choice question for Performance Measurement. Select an option, then review the explanation below.

Explanation

To calculate EVA, first determine the capital employed by subtracting total liabilities from total assets: $485,000 - $367,000 = $118,000. Then, multiply the capital employed by the WACC: $118,000 × 11% = $12,980. Finally, subtract this capital charge from the after-tax operating income: $185,000 - $12,980 = $172,020, which corresponds to option B.

Practice related questions from the same subject.

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4.The economic value added (EVA) approach is a particular technique used to determine which of the following?
5.What represents the after-tax average expense of the capital a company utilizes over the long term?

Given an after-tax operating profit of $185,000, a weighted average cost of capital (WACC) of 11%, total assets valued at $485,000, and total liabilities amounting to $367,000, what is the Economic Value Added (EVA)?

Explanation

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