Problem 3-11 EVA For 2015, Everyday Electronics reported $22.5 million of sales

Question

Problem 3-11
EVA

For 2015, Everyday Electronics reported $22.5 million of sales and $18 million of operating costs (including depreciation). The company has $15 million of investor-supplied operating capital. Its weighted average cost of capital is 10% and its federal-plus-state income tax rate was 35%. 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

Economic Value Added (EVA) = NOPAT - weighted average cost of capital*Invested capital

Economic Value Added (EVA) = 2925000 - 10%*15000000

Economic Value Added (EVA) = $ 1425000

NOPAT =(Sales - operating costs (including depreciation))*(1-tax rate)

NOPAT = (22.5 - 18)*(1-35%)

NOPAT = $ 2.925 Million

NOPAT =$ 2,925,000

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