Question

Roosevelt, Inc. produces the following income statement and balance sheet for the year. Net sales of...

Roosevelt, Inc. produces the following income statement and balance sheet for the year. Net sales of the firm are 3800million. Depreciation is 360million. Earnings before income and taxes is 1780million and net income is 832million. Interest expense is 500million. Current liabilities, long term debt and shareholder’s equity are 800, 2000 and 4000 million, respectively. The company has a tax rate of 35% and a cost of capital of 11.00%. What is the Economic value added (EVA)?

Multiple Choice

  • 460million

  • 625million

  • 497million

  • 350million

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Answer #1
Economic Value added (EVA) = NOPAT - (Capital Invested * Cost of capital)
NOPAT = Net Operating profit after tax
NOPAT                    = EBIT * (1-tax)
             = $1780 * 0.65
             = $1157
EVA = $1157 - ($6000*11%)
         = $1157 - $660
         = $497
3rd option is the correct answer.
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