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9 February, 18:07

Your venture has net income of $600,000 taxable income of $1,000,000 operating profit of $1,200,000 total financial capital including both debt and equity of $9,000,000 a tax rate of 40%, and a WACC of 10%. What is your venture's EVA?

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  1. 9 February, 18:14
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    EVA = - $180,000

    Explanation:

    given data

    net income = $600,000

    taxable income of $1,000,000

    operating profit = $1,200,000

    total financial capital = $9,000,000

    tax rate = 40%

    WACC = 10%

    solution

    we get here EVA that is express as

    EVA = NOPAT - Invested Capital * WACC ... 1

    and here

    NOPAT = EBIT * (1 - Tax Rate) ... 2

    put here value

    NOPAT = operating profit * (1 - Tax Rate)

    NOPAT = $1,200,000 * (1 - 0.40)

    NOPAT = $720,000

    so put in equation 1 we get

    EVA = NOPAT - Invested Capital * WACC

    EVA = $720,000 - $9,000,000 * 10%

    EVA = - $180,000
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