People's Construction Company has set a 15% required minimum rate of return.The company's CFO is considering investing in a $125,000 crane that is expected to generate $25,000 of additional operating income.People's weighted-average cost of capital is 10% and its tax rate is 30%.What is the crane's EVA?
A) $5,000
B) $12,500
C) $17,500
D) $100,000

Question

Quizplus · Accepted Answer

EVA = Net operating profit - invested capital x weighted average cost of capital = $25,000 x 70% - $125,000 x 10% = $17,500

People's Construction Company Has Set a 15% Required Minimum Rate