or 2018, Gourmet Kitchen Products reported $22 million of sales and $18 million of operating costs (including depreciation). The

Question

3 years ago

15

or 2018, Gourmet Kitchen Products reported $22 million of sales and $18 million of operating costs (including depreciation). The

company has $15 million of total invested capital. Its after-tax cost of capital is 9% and its federal-plus-state income tax rate was 35%. What was the firm's economic value added (EVA), that is, how much value did management add to stockholders' wealth during 2018

Business

1 answer:

Vinil7 [7] · Answer 1 · 2022-01-30T18:43:23+03:00

Answer:

Economic value added = $1,250,000

Explanation:

Economic value added (EVA) = Net operating profit after taxes - Invested capital * cost of capital

Economic value added= [($22,000,000 - $18,000,000) * (1 - 0.35)] - [$15,000,000 * 9%]

Economic value added = ($4,000,000 * 0.65) - $1,350,000

Economic value added = $2,600,000 - $1,350,000

Economic value added = $1,250,000