If a division of a multidivisional firm has adjusted accounting earnings of $10 million, a weighted average cost of capital of 10% and a total capital employed by the division of $50 million, the division has an EVA of
A) $25 million.
B) $5 million.
C) $15 million.
D) $20 million.

Question

Quizplus · Accepted Answer

EVA (Economic Value Added) is calculated as: EVA = NOPAT - (Capital Employed * WACC). Here, NOPAT is $10 million, Capital Employed is $50 million, and WACC is 10%. So, EVA = $10 million - ($50 million * 10%) = $10 million - $5 million = $5 million.

If a Division of a Multidivisional Firm Has Adjusted Accounting