ANSWER
Find out the EVA of the firm.
To proof
As given
A firm has an EBIT of $22 million
total invested capital of $74 million,
the average cost of funds of 12%.
The firm has a marginal tax rate of 35% and 4.2 million shares of the firm are outstanding.
Formula
calculate economic value
EVA = EBIT (1-T) - [(Average cost of funds) × (Invested capital)]
12 % is written in the decimalform
[tex]=\frac{12}{100}[/tex]
= 0.12
35 % is written in the decimal form
[tex]= \frac{35}{100}[/tex]
=0.35
put the value in the formula
= 22× ( 1- 0.35) - [ (0.12 × 74) ]
= 22 × 0.65 - 8.88
= $5.42million
Therefore $5.42million is the EVA of the firm
Hence proved
