Question

Consider this case: Last year, Jackson Tires reported net sales of $80,000,000 and total operating costs (including depreciation) of $52,000,000. Jackson Tires has $83,500,000 of investor-supplied capital, which has an after-tax cost of 10%. Of Jackson Tires’s tax rate is 40%, how much value did its management create or lose for the firm during the year (rounded to the nearest whole dollar)?

Answer 1

Answer:

Value added: 8,450,000

Explanation:

net sales                  80,000,000

operating cost:     (52,000,000)  

EBT                          28,000,000

tax expense:

28,000,000 x 40%  (11,200,000)  

Net income              16,800,000

Assets: 83,500,000

cost of capital: 83,500,000 x 10%  = 8,350,000

Value added:

16,800,000 - 8,350,000 = 8,450,000