Inc.reported $12,500 of sales and $7,025 of operating costs The company had $18,750 of investor-supplied operating assets (or capital), the weighted average cost of that capital (the WACC) was 9.5%, and the federal-plus-state income tax rate was 40%.What was HHH's Economic Value Added (EVA), i.e., how much value did management add to stockholders' wealth during the year?
A)$1,357.13
B)$1,428.56
C)$1,503.75
D)$1,578.94
E)$1,657.88

Question

Quizplus · Accepted Answer

First, we need to calculate the net operating profit after taxes (NOPAT):
NOPAT = Operating income * (1 - tax rate)
        = ($12,500 - $7,025) * (1 - 0.4)
        = $3,885

Next, we need to calculate the cost of capital:
Cost of capital = WACC * Investor-supplied capital
                       = 0.095 * $18,750
                       = $1,781.25

Finally, we can calculate EVA:
EVA = NOPAT - Cost of capital
      = $3,885 - $1,781.25
      = $2,103.75

Therefore, the answer is C, $1,503.75.

Increported $12,500 of Sales and $7,025 of Operating Costs the Company