Economic value added is equal to ________.
A) After-tax operating income - [Weighted-average cost of capital + (Total assets - Current liabilities)]
B) Pre-tax operating income - [Weighted-average cost of capital + (Total assets - Current liabilities)]
C) After-tax operating income - [Weighted-average cost of capital × (Total assets - Current liabilities)]
D) Pre-tax operating income - [Weighted-average cost of capital × (Total assets - Current liabilities)]

Question

Quizplus · Accepted Answer

Economic value added is calculated by subtracting the cost of capital from after-tax operating income, adjusted for the amount of capital invested. In this case, the formula is after-tax operating income - [weighted-average cost of capital × (total assets - current liabilities)]. Option C matches this formula, while the other options either use pre-tax operating income or subtract the cost of capital from a different formula.

Economic Value Added Is Equal to ________