For 2012, Everyday Electronics reported $22.5 million of sales and $19 million o

Question

For 2012, Everyday Electronics reported $22.5 million of sales and $19 million of operating costs (including depreciation). The company has $15 million of investor-supplied operating capital. Its weighted average cost of capital is 9% and its federal-plus-state income tax rate was 36%. What was the firm's Economic Value Added (EVA), that is, how much value did management add to stockholders' wealth during 2012? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest dollar, if necessary.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Economic Value Added = Net Operating Profit After Taxes - Operating Capital*Weighted Average Cost of Capital = (22500000 - 19000000)*(1-.36) - 15000000*9%= 890000

Answer is $890000.

Thanks.

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