Casey Motors recently reported the following information: ∙ Net income = $600,000.
∙ Tax rate = 40%.
∙ Interest expense = $200,000.
∙ Total invested capital employed = $9 million.
∙ After-tax cost of capital = 10%.
What is the company's EVA?

Question

Quizplus · Accepted Answer

EVA (Economic Value Added) = Net Operating Profit After Taxes (NOPAT) - (Total Capital Employed x After-tax Cost of Capital)

Firstly, we need to calculate NOPAT:
NOPAT = Net Income + Interest Expense x (1 - Tax Rate)
NOPAT = $600,000 + $200,000 x (1 - 0.4)
NOPAT = $720,000

Next, we can calculate the EVA:
EVA = $720,000 - ($9 million x 0.1)
EVA = $720,000 - $900,000
EVA = -$180,000

Therefore, the company's EVA is -$180,000. The best choice is D.

Casey Motors Recently Reported the Following Information: ∙ Net Income