A firm produces $65 million of net income on $2,030 million of assets. Given that investors expect a 5 percent return, what is the EVA?

Question

Quizplus · Accepted Answer

Economic Value Added (EVA) is calculated as EVA = NOPAT - (WACC * Total Capital), where NOPAT is net operating profit after taxes (which can be approximated by net income for this question), and WACC is the weighted average cost of capital (which investors expect as a return, here 5%). So, EVA = $65 million - (5% of $2,030 million) = $65 million - $101.5 million = -$36.5 million.

A Firm Produces $65 Million of Net Income on $2,030