The Aubrey Company employs $60,000,000 of long-term capital and $20,000,000 of short-term liabilities.Its weighted-average cost of capital is 10% while its operating profit is $17,000,000.If the company has a marginal tax rate of 40%,Aubrey's EVA is:

Question

Quizplus · Accepted Answer

EVA = NOPAT - (WACC * total capital). NOPAT = Operating Profit * (1 - Tax Rate) = $17,000,000 * (1 - 0.4) = $10,200,000. Total capital = Long-term capital + Short-term liabilities = $60,000,000 + $20,000,000 = $80,000,000. EVA = $10,200,000 - (0.1 * $80,000,000) = $10,200,000 - $8,000,000 = $2,200,000.

The Aubrey Company Employs $60,000,000 of Long-Term Capital and $20,000,000