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Kordell Company recently reported $170,000 in operating income (EBIT). The com pany’s total operating capital is $800,000. The company’s after-tax cost of that capital is 11.625 percent, and the company is in the 40 percent tax bracket. What is Kordell’s EVA?

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Sclementh123

Answer:

Step-by-step explanation:

1. EVA = NOPAT − (WACC× Total Capital)

  • NOPAT (Net Operating Profit After Taxes) is the company's operating income minus taxes.
  • WACC (Weighted Average Cost of Capital) is the weighted average cost of the company's debt and equity.

2. NOPAT=EBIT×(1−TaxRate)

3. EBIT = $170,000

4. Tax Rate=40%

5. NOPAT = $170,000 \times (1 - 0.40) = $102,000

6. WACC=11.625%

7. EVA=NOPAT−(WACC× TotalCapital)

8. Total Capital = $800,000

9. EVA = $102,000 - (0.11625 \times $800,000)

10. EVA = $102,000 - $93,000

11. EVA = $9,000

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