Question

Barnes' Brothers has the following data for the year ending 12/31/2015: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,100. Barnes' weighted average cost of capital is 10%. What is its economic value added (EVA)?

Answer 1

Answer: $490

Explanation:

Economic value added is the estimate of the economic profit of a firm. The economic value added(EVA) is also gotten when the capital charge for the raise of the firm's capital is deducted from the net profit.

Based on the above information, the economic value added will be:

= Net profit - (Total Operating capital × Weighted average cost of capital)

= $700 - ($2,100×10%)

= $700 - $210

= $490