Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 19

Jamison Auto Parts produces replacement parts for automobiles. Last year Jamison had EVA® net income of $200,000, cost of capital of 10 percent, and EVA® capital of $750,000. Determine the firm’s economic value added.

Step 1 of 3

Economic value added (EVA)

It is basically a business unit income after taxes and also after deducting the cost of capital. Economic value added (EVA) is an estimate of firm economic profit and it is also company’s financial performance which is based on the wealth of the company after deducting the cost of capital from the operating profit of the firm. The concept of EVA is used during 1990’s by Stern Stewart, a New York based consulting firm.