If after-tax income of Grey Division, adjusted for economic value, is 15% of sales, capital employed is $5,000,000 (adjusted for equity-equivalents), the divisional cost of capital (discount rate) is 8%, and sales are $12,000,000, then Economic Value Added (EVA®) is:

Question

Quizplus · Accepted Answer

EVA = (after-tax income - (capital employed x cost of capital))
Adjusted after-tax income = 15% x $12,000,000 = $1,800,000
Adjusted capital employed = $5,000,000
EVA = ($1,800,000 - ($5,000,000 x 8%)) = $1,400,000

If After-Tax Income of Grey Division, Adjusted for Economic Value