Company's Economic value added amount is (-$275,000)
Let understand that Economic Value Added is basically, an estimate of the company's economic profit
- The formulae for deriving Economic Value Added =
Let understand that NOPAT means Net operating profit after tax. NOPAT = EBIT (1 - Tax)
Suppose EBIT = x
EBIT - Interest - Tax = Net Income
(x - 200,000) - 0.25*(x - 200000) = 475,000
x - 200,000 = 475,000/0.75
x = 833333.33
Now, EBIT = $833,333.33
Then we calculate <em>NOPAT </em><em>= </em><em>EBIT (1 - Tax)</em>
NOPAT = 833,333.33 * (1 - 0.25)
NOPAT = $625,000
Then, we calculate Economic Value Added
EVA = $625,000 - 0.10*$9,00,0000
EVA = $625,000 - $900,000
EVA = ($275,000)
In conclusion, the amount of the Company's Economic value added is a negative of $275,000.
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