In 2010 company Z made $ 10 million in sales and $5 million in operating cost (

Question

In 2010 company Z made $ 10 million in sales and $5 million in operating cost ( operating expense is always .5 of sales), There stockholders financed a total of $ 50 million at a required rate of return of 8%. If the company's tax rate is 30%, what was the company's economic value added (EVA)? what should the company have made in sales in 2010 just to meet the investors required rate of return? pleas use tis formula EVA=EBIT(1-T)-( TOTAL INVESTOR SUPPLIES OPERATING CAPITAL X AFTER TAX PERCENTAGE COST OF CAPITAL)

Explanation / Answer

EVA=EBIT(1-T)-( TOTAL INVESTOR SUPPLIES OPERATING CAPITAL X AFTER TAX PERCENTAGE COST OF CAPITAL)

= (10m-5m)*(1-.3) - 50m*.08

= -0.5million

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