Jericho Paper Distributors has a stable share of a saturated regional market. If the company's EVA is expected to continue at $7.2 million indefinitely, its capital invested is $3.1 million, and its cost of capital is 8%, what is the total business value?

Question

Quizplus · Accepted Answer

The formula for business value is Business Value = Capital Invested + Present Value of Expected EVA.
Using the given information:
Capital Invested = $3.1 million
Expected EVA = $7.2 million
Cost of Capital = 8%
Therefore, Present Value of Expected EVA = Expected EVA / Cost of Capital = $7.2 million / 0.08 = $90 million

Business Value = $3.1 million + $90 million = $93.1 million

Therefore, the correct choice is B.

Jericho Paper Distributors Has a Stable Share of a Saturated