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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 500,000,anditsCapitalEmployedis500,000, 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

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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 = 500,000CapitalEmployed=500,000 Capital Employed = 2,000,000 WACC = 8% = 0.08

Substitute these values into the formula:

EVA = 500,000(0.08500,000 - (0.08 * 2,000,000) EVA = 500,000500,000 - 160,000 EVA = $340,000

So, the company's EVA is $340,000.

This problem has been solved

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