Find a venture's economic value added (EVA) based on the following information: EBIT = $200,000; financial capital used = $500,000; WACC = 20%; and effective tax rate = 30%.

Question

Quizplus · Accepted Answer

First, we need to calculate the weighted cost of capital (WACC) which is 20% in this scenario.

Next, we need to calculate the net operating profit after tax (NOPAT) which is:
NOPAT = EBIT x (1 - effective tax rate)
NOPAT = $200,000 x (1-0.30)
NOPAT = $140,000

Then we can calculate the economic value added (EVA) using the following formula:
EVA = NOPAT - (WACC x financial capital used)
EVA = $140,000 - (0.20 x $500,000)
EVA = $140,000 - $100,000
EVA = $40,000

Therefore, the answer is C) $40,000.

Find a Venture's Economic Value Added (EVA) Based on the Following