Use the following income statement for Lopez Laser to answer problems 10 through

Question

Use the following income statement for Lopez Laser to answer problems 10 through 12 Sales $40,000,000 Operating costs excluding depreciation amortization 25,000,000 EBITDA $15,000,000 Depreciation and amortization_8,000.000 Operating income (EBIT) $7,000,000 Interest expense 3,000,000 Taxable income (EBT) S 4,000,000 Taxes (40%) 1.600.000 Net income 2,400,000 and 10. The net operating profit after tax is a. $1,800,000 b. S3,000,000 c. $4,200,000 d. $6,000,000 e. none of the above 11. If Lopez has operating capital of S30,000,000 and a weighted average cost of capital of 11%, what is the firm's economic value added (EVA)? a. -S900,000 b. $700,000 c. $900,000 d. $3,700,000 e. $5,700,000

Explanation / Answer

10. Answer = C. $4,200,000

NOPAT = Operating Income × (1 - Tax Rate)

= $7,000,000 × (1 - 0.40)

= $4,200,000

Therefore Net Operating Profit After Tax = $4,200,000

11. Answer = C. $900,000

Economic Value Added = NOPAT - (WACC × Capital Invested)

= $4,200,000 - 0.11($30,000,000)

= $900,000

Therefore EVA = $900,000

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