The following information was obtained about Nashville Bottling.
EBIT = $6 million
I = $1 million
Taxes rate = 34%
Debt = $2 million
Equity = 8 million
Weighted average cost of capital = 8.75 percent
Over the reporting period, what is its economic value added?

Question

The following information was obtained about Nashville Bottling. 
EBIT = $6 million
I = $1 million
Taxes rate = 34%
Debt = $2 million
Equity = 8 million
Weighted average cost of capital = 8.75 percent
 Over the reporting period, what is its economic value added?

Quizplus · Accepted Answer

Economic Value Added (EVA) is calculated as NOPAT - (WACC * Capital). NOPAT is EBIT - Taxes, which is $6 million - ($6 million * 34%) = $3.96 million. Capital is Debt + Equity = $2 million + $8 million = $10 million. EVA = $3.96 million - (8.75% * $10 million) = $3.96 million - $0.875 million = $3.085 million.

The Following Information Was Obtained About Nashville Bottling