Doral Division of Resorts International reported net operating profit after taxes totaling $120,000 in 2017.The cost of capital is 10.5 percent and the invested capital is $560,000.R&D incurred in 2017 was $100,000.The company's policy is to amortize intangible assets over 4 years.The income tax rate is 30 percent.How much is the company's economic value added for 2017?
A)$105,825
B)$825
C)$70,825
D)$75,825

Question

Quizplus · Accepted Answer

EVA=NOPAT-(Cost of capital*Invested capital)=$120,000-(10.5%*560,000)=$120,000-$59,200=$60,800EVA after amortization of R&D=$60,800-(100,000/4)=$60,800-$25,000=$35,800EVA after tax=$35,800*(1-30%)=$35,800*0.7=$25,060EVA=$25,060

Doral Division of Resorts International Reported Net Operating Profit After