Question

Home Depot entered fiscal 2017 with a total capitalization of $21,898 million. In 2017, debt investors received interest income of $875 million. Net income to shareholders was $8,648 million. (Assume a tax rate of 21%.)

Calculate the economic value added assuming its cost of capital is 10%. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Economic value added = __________ million

Answer 1

Formula for :-

Economic value added = EBIT*(1- Tax rate) - (Cost of capital*Total Capitalization)

i) EBIT = NEt Income/(1- Tax Rate) + Interest Expenses

EBIT = $8648 million/(1-0.21) + $875 million

EBIT = $11,821.8354 million

Economic value added = $11,821.8354 million*(1-0.21) - (0.10*$21,898 million)

Economic value added = $9339.25 million - $2189.8 million

Economic value added = $7149.45 million

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