Economic value added is calculated by which of the following formulas?
A)EVA = After-tax operating income + (Weighted average cost of capital × Total capital employed)
B)EVA = After-tax operating income × Weighted average cost of capital
C)EVA = After-tax operating income - (Weighted average cost of capital × Total capital employed)
D)EVA = Total capital employed - (Weighted average cost of capital × After-tax operating income)

Question

Quizplus · Accepted Answer

Economic value added (EVA) is calculated by subtracting the weighted average cost of capital (WACC) multiplied by the total capital employed from the after-tax operating income. This is represented by the formula EVA = After-tax operating income - (WACC × Total capital employed), which is option C. Option A adds the WACC to the after-tax operating income, which is incorrect. Option B multiplies the after-tax operating income by the WACC, which is also incorrect. Option D subtracts the WACC multiplied by the after-tax operating income from the total capital employed, which is not the correct formula for EVA.

Economic Value Added Is Calculated by Which of the Following