Tentafield Ltd has an after tax operating income of $2.6 million, assets totalling $8 million and current liabilities totalling $400 000. The weighted average cost of capital is 10 per cent. What is the economic value added?
A) $1 400 000
B) $1 800 000
C) $1 840 000
D) None of the given answers

Question

Quizplus · Accepted Answer

First, we need to calculate the total capital of the company:
Total Capital = Assets - Current Liabilities
Total Capital = $8,000,000 - $400,000
Total Capital = $7,600,000

Next, we need to calculate the cost of capital:
Cost of Capital = Total Capital x Weighted Average Cost of Capital (WACC)
Cost of Capital = $7,600,000 x 0.10
Cost of Capital = $760,000

Finally, we can calculate the economic value added (EVA):
EVA = After Tax Operating Income - Cost of Capital
EVA = $2,600,000 - $760,000
EVA = $1,840,000

Therefore, the answer is C) $1,840,000

Tentafield Ltd Has an After Tax Operating Income of $2