Question

A firm has an average investment of $10,000 during the year. During the same period, the...

A firm has an average investment of $10,000 during the year. During the same period, the firm generates after-tax income of $1,000.

Calculate the economic value added (EVA) for the firm. (The cost of capital is 15 percent.)

Multiple Choice

  • $1,000

  • $1,200

  • $1,500

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Answer #1

Calculation of the Economic Value Added (EVA) for the firm.
The cost of capital is 15%
An average investment of $10,000 during the year.
After-tax income of $1,000.
Ans = None of the option is correct..

Calculation of EVA :
= Net Operating Profit After Taxes (NOPAT) - (Invested Capital * Average Cost of Capital)
=$1,000 - ($10000 * 15%)
=$1,000- $1,500
=($500) Negative EVA

Note : As per shown above in actually, firm has not any economic value addition, or say "Negative EVA"

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