The weighted-average cost of capital for Forstone Corporation is 12 percent. Las

Question

The weighted-average cost of capital for Forstone Corporation is 12 percent. Last year one of the divisions of Forstone generated an EVA of $3,720,000, while the division's assets less its current liabilities were $25,600,000.

How much after-tax operating income did the division generate?

The weighted-average cost of capital for Forstone Corporation is 12 percent. Last year one of the divisions of Forstone generated an EVA of $3,720,000, while the division's assets less its current liabilities were $25,600,000.

Explanation / Answer

Hi,

Please find the answer as follows:

EVA = Net Operating Profit After Taxes - Capital*Cost of Capital

3720000 = Net Operating Profit After Taxes - 25600000*.12

Net Operating Profit After Taxes = 3720000 + 3072000 = 6792000

Answer is 6792000

Thanks.

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