Calculating Economic Value Added East Mullett Manufacturing earned operating inc

Question

Calculating Economic Value Added

East Mullett Manufacturing earned operating income last year as shown in the following income statement:

At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the value of operating assets was $1,400,000.

Total capital employed equaled $1,200,000. East Mullett's actual cost of capital is 4%.

Required:

Calculate the EVA for East Mullett Manufacturing.
$

Sales $3,750,000 Cost of goods sold 2,250,000 Gross margin $1,500,000 Selling and administrative expense 1,200,000 Operating income $ 300,000 Less: Income taxes (@ 40%) 120,000    Net income $ 180,000

Explanation / Answer

after tax operating income = 180000

cost of capital = 4%

capital employed = 1200000

EVA for East Mullett Manufacturing = after tax operating income - (actual percentage of cost of capital x total capital employed)

= 180000-(4%*1200000) = 132000

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.