Casey Motors recently reported net income of $55 million. The firm's tax rate was 40.0% and interest expense was $19 million. Th

Question

2 years ago

11

Casey Motors recently reported net income of $55 million. The firm's tax rate was 40.0% and interest expense was $19 million. Th

e company's after-tax cost of capital is 9.0% and the firm's total investor supplied operating capital employed equals $385 million. What is the company's EVA

Business

1 answer:

nadezda [96] · Answer 1 · 2022-07-11T13:58:00+03:00

Answer:

$31.76 million

Explanation:

Economic Value Added is the residual wealth left for shareholders after having accounted for the financing needs of the company as shown by the formula below:

EVA=NOPAT-(WACC*invested capital)

NOPAT is the net operating profit after tax =operating profit(EBIT)*(1-tax rate)

Net income=Earnings before tax*(1-tax rate)

net income= $55 million

EBT=unknown

tax rate=40.0%

$55=EBT*(1-40.0%)

$55=EBT*0.60

EBT=$55/0.60

EBT=$91.67

EBIT=EBT+interest

EBIT=$91.67+$19

EBIT=$110.67

NOPAT=$110.67*(1-40%)

NOPAT=$66.41

WACC=9.0%

perating capital employed=$385

EVA=$66.41-(9.0%*$385)

EVA=$31.76 million

operating capital em