Question

For 2016, Gourmet Kitchen Products reported $22 million of sales and $19 million of operating costs (including depreciation). The company has $15 million of total invested capital. Its after-tax cost of capital is 8% 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 2016? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest dollar, if necessary.

Answer 1

Answer:

Explanation:

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

= [($22,000,000 - $19,000,000)*(1 - 0.35)] - [$15,000,000*8%]

= $750,000