A firm has an average investment of $10,000 during the year.During the same period,the firm generates after-tax income of $1,000.
Calculate the economic value added (EVA)for the firm.(The cost of capital is 15%.)
A)-$500
B)$1,500
C)$1,200
D)$1,000

Question

Quizplus · Accepted Answer

Economic Value Added (EVA) is calculated as Net Operating Profit After Taxes (NOPAT) minus the product of the cost of capital and the average investment. Here, EVA = $1,000 - (15% of $10,000) = $1,000 - $1,500 = -$500.

A Firm Has an Average Investment of $10,000 During the Year.During