Scranton Shipyards has $20 million in total invested operating capital, and its WACC is 10%. Scranton has the following income statement: $\begin{array}{c}
\begin{array}{lll}
\text {Sales}\
\text {Operating costs}\
\text {Operating income $ \{\mathrm{EBIT}\} $}\
\text {Interest expense}\
\text {Earnings before taxes \{EBT\}}\
\text {Taxes $ \{40 \%\} $}\
\text {Net income}
\end{array}
\begin{array}{l}
\$ 10.0 \text { million } \
\quad 6.0 \text { million } \
\hline 4.0 \text { million } \
2.0 \text { million } \
\hline \$ 2.0 \text { million } \
0.8 \text { million } \
\hline\$ 1.2 \text { million }
\end{array}
\end{array}$
What is Scranton's EVA?

Question

Scranton Shipyards has $20 million in total invested operating capital, and its WACC is 10%. Scranton has the following income statement: $\begin{array}{c}
\begin{array}{lll}
\text {Sales}\
\text {Operating costs}\
\text {Operating income $ \{\mathrm{EBIT}\} $}\
\text {Interest expense}\
\text {Earnings before taxes \{EBT\}}\
\text {Taxes $ \{40 \%\} $}\
\text {Net income}
\end{array}
\begin{array}{l}
\$ 10.0 \text { million } \
\quad 6.0 \text { million } \
\hline 4.0 \text { million } \
2.0 \text { million } \
\hline \$ 2.0 \text { million } \
0.8 \text { million } \
\hline\$ 1.2 \text { million } 
\end{array} 
\end{array}$
 What is Scranton's EVA?

Quizplus · Accepted Answer

Economic Value Added (EVA) is calculated as NOPAT - (WACC * Capital). NOPAT is EBIT * (1 - Tax Rate) = $4 million * (1 - 0.4) = $2.4 million. EVA = $2.4 million - (0.10 * $20 million) = $2.4 million - $2 million = $400,000.

Scranton Shipyards Has $20 Million in Total Invested Operating Capital