Barnes' Brothers has the following data for the year ending 12/31/07: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,100.Barnes' weighted average cost of capital is 10%.What is its economic value added (EVA)?

Question

Quizplus · Accepted Answer

Economic Value Added (EVA) is calculated as NOPAT minus the capital charge. The capital charge is the total operating capital multiplied by the weighted average cost of capital (WACC). Here, NOPAT is $700, total operating capital is $2,100, and WACC is 10%. So, the capital charge is $2,100 * 10% = $210. Therefore, EVA = $700 - $210 = $490.

Barnes' Brothers Has the Following Data for the Year Ending