Use the information below to answer the following question(s):
The Beverage Division of Natural Foods Corporation had sales of $4,200,000 and operating income of $840,000 last year. The total assets of the Beverage Division were $1,680,000, while current liabilities were $360,000. Natural Foods Corporation's target rate of return is 9%, while its weighted average cost of capital is 7%. The effective tax rate for the company is 40%.
-What is the Beverage Division's Economic Value Added (EVA)?
A) $688,800
B) $504,000
C) $411,600
D) $92,400

Question

Quizplus · Accepted Answer

EVA = Net Operating Profit After Taxes (NOPAT) - (Cost of Capital x Total Capital)
NOPAT = Operating Income x (1 - Tax Rate) = $840,000 x (1 - 0.40) = $504,000
Total Capital = Total Assets - Current Liabilities = $1,680,000 - $360,000 = $1,320,000
Cost of Capital = Weighted Average Cost of Capital x Total Capital = 0.07 x $1,320,000 = $92,400
EVA = $504,000 - $92,400 = $411,600

Use the Information Below to Answer the Following Question(s)