XYZ Company\'s net operating profit before taxes is $180 million. The tax rate i

Question

XYZ Company's net operating profit before taxes is $180 million. The tax rate is 40%. XYZ's total assets (invested capital) are $1,150 million, and current liabilities are $130 million. The weighted average cost of capital (WACC) is 9%.

Compute the economic value added (EVA).
To do that, first compute NOPAT = $  million (if you get say $55.4million, enter 55.4, not 55,400,000)
After that, compute EVA = $  million (If you get a negative number, enter it with a minus sign. E.g., if you got negative $3.25 million, enter -3.25)

Explanation / Answer

Answer:

Economic Value Added = Net Operating Profit after tax - ( Capital Invested * Weighted average cost of capital )

Net Operating Profit after tax = Net operating profit before tax - tax rate

= $ 180 million - 40%

= $ 108 million

= 108

EVA = 108 - [ ( $1,150 million - $ 130 million ) * 9% ]

= 108 - ( 1020 * 9%)

= 108 - 91.8

= 16.2

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