A firm has an average investment of $1,000 during the year. During the same time, the firm generates after-tax earnings of $150. Calculate the economic value added (EVA)for the firm. (The cost of capital is 10 percent.)
A)$100
B)$50
C)$120
D)$150

Question

Quizplus · Accepted Answer

Economic Value Added (EVA) is calculated as the net operating profit after taxes (NOPAT) minus the opportunity cost of capital. Here, NOPAT is $150, and the opportunity cost of capital is 10% of $1,000, which is $100. Therefore, EVA = $150 - $100 = $50.

A Firm Has an Average Investment of $1,000 During the Year