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?

Question

August Delgado

Business

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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Answers (1)

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Dots · Answer 1

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