Question

Dexter Consulting, Inc. recently reported the following information: Net income = $395,000 Sales = $700,000 Total Assets = $1.5 million Tax rate = 21% Interest expense = 13,000 Accounts Payable = 74,000 Notes Payable = 900,000 Accruals = 12,000 After-tax cost of capital = 10% What is the company’s EVA?

Answer 1

Answer:

$170,650

Explanation:

economic value added (EVA) = NOPAT – (WACC x capital invested)  

• NOPAT = net operating profits after tax
• WACC = weighted average cost of capital
• capital invested = assets - current liabilities

NOPAT = net income x (1 - 21%) = $395,000 x 0.79 = $312,050

WACC = 10%

capital invested = $1,500,000 - $74,000 (accounts payable) - $12,000 (accruals) = $1,414,000

EVA = $312,050 - (10% x $1,414,000) = $312,050 - $141,400 = $170,650