If a company's NOPAT (Net Operating Profit After Tax) is $500,000, and its Capital Employed is $2,000,000, and the WACC is 8%, what is the company's EVA?60,000340,0001,600,000500,000
Question
If a company's NOPAT (Net Operating Profit After Tax) is 2,000,000, and the WACC is 8%, what is the company's EVA?60,000340,0001,600,000500,000
Solution
Economic Value Added (EVA) is a measure of a company's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for taxes on a cash basis.
The formula for EVA is:
EVA = NOPAT - (WACC * Capital Employed)
Given the values:
NOPAT = 2,000,000 WACC = 8% = 0.08
Substitute these values into the formula:
EVA = 2,000,000) EVA = 160,000 EVA = $340,000
So, the company's EVA is $340,000.
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