Question

Barton Industries has operating income for the year of $3,700,000 and a 25% tax rate. Its total invested capital is $18,000,000 and its after-tax percentage cost of capital is 5%. What is the firm's EVA? Round your answer to the nearest dollar, if necessary.

Answer 1

1,875,000 Economic Value Added

Step-by-step explanation:

Net Operating Profit After Taxes - Invested Capital x Weighted Average Cost of Capital = Economic Value added

This represent the return on the shareholders after their investment return is paid. It is the value generated from the investent resources.

3,700,000 x ( 1- 0.25 ) = 2,775,000 Operating Income after taxes

18,000,000 x 5% = (900,000) Required Return

1,875,000 Economic Value Added