Julio Company's after-tax operating income was $882 million.Total assets were $5,900 million and total stockholders' equity was $4,050 million.Julio Company's cost of capital was 10%.Julio Company uses total assets as the measure of invested capital.What is Julio Company's EVA?

Question

Quizplus · Accepted Answer

First, we need to determine the invested capital:
Invested Capital = Total Assets = $5,900 million
Next, we need to calculate the Weighted Average Cost of Capital (WACC):
WACC = Cost of Equity*(% Equity) + Cost of Debt*(% Debt)*(1 - Tax Rate)
Assuming Julio Company has no debt, the WACC will simply be the cost of equity, which is 10%.
Now, we can use the formula for Economic Value Added (EVA):
EVA = After-Tax Operating Income - (Invested Capital * WACC)
EVA = $882 million - ($5,900 million * 10%) 
EVA = $882 million - $590 million = $292 million
Therefore, the best choice is B, with an EVA of $292 million.

Julio Company's After-Tax Operating Income Was $882 Million