Spencer Inc. has the following information for the current year: Net income = $600; Net operating profit after taxes (NOPAT) = $500; Total assets = $4,000; Short-term investments = $500; Stockholders equity = $2,000; Debt = $1,000; and Total net operating capital = $2500. If Spencer's cost of capital is 10%, what is its Economic value added (EVA)?
A) $250
B) $300
C) $350
D) $375
E) $400

Question

Quizplus · Accepted Answer

EVA is calculated as NOPAT minus the product of Total net operating capital and the cost of capital. EVA = $500 - ($2500 * 0.10) = $500 - $250 = $250.