What formula is used to calculate economic value added?
A)After-tax operating income + (Weighted average cost of capital * Total capital employed)
B)After-tax operating income * Weighted average cost of capital
C)After-tax operating income - (Weighted average cost of capital * Total capital employed)
D)Total capital employed - (Weighted average cost of capital * After-tax operating income)

Question

Quizplus · Accepted Answer

Economic value added is calculated by subtracting the weighted average cost of capital (WACC) multiplied by the total capital employed from after-tax operating income. This is expressed in the formula: EVA = After-tax operating income - (WACC x Total capital employed). Therefore, the correct formula is option C.

What Formula Is Used to Calculate Economic Value Added