Question

# Home Depot entered fiscal 2016 with a total capitalization of \$27,252 million. In 2016, debt investors...

Home Depot entered fiscal 2016 with a total capitalization of \$27,252 million. In 2016, debt investors received interest income of \$843 million. Net income to shareholders was \$6,384 million. (Assume a tax rate of 35%.) 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.)

Net Operating Profit after tax (NOPAT)

Net Operating Profit after tax (NOPAT) = Net Income + Interest income after tax

= \$6,384 Million + [\$843 Million x (1 – 0.35)]

= \$6,384 Million + [\$843 Million x 0.65]

= \$6,384 Million + \$547.95 Million

= \$6,931.95 Million

Cost of capital employed

Cost of capital employed = Total capitalization x Cost of capital

= \$27,252 Million x 10%

= \$2,725.20 Million

Economic Value Added (EVA) = NOPAT – Cost of capital employed

= \$6,931.95 Million - \$2,725.20 Million

= \$4,206.75 Million

“Hence, the Economic Value Added (EVA) will be \$4,206.75 Million”