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%. 1- If the company's tax rate is 30%, what was the company's economic value added (EVA)? 2- 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) plz answer all the Q.

Explanation / Answer

EBIT = $10m - $5m = $5million after tax earnings = 5(1-0.3 ) = $3.5million TOTAL INVESTOR SUPPLIES OPERATING CAPITAL X AFTER TAX PERCENTAGE COST OF CAPITAL = $50million*0.08 = $4million so EVA = 3.5-4 = -0.5million assume the company should have made X sales then operating costs = 0.5X(operating expense is always .5 of sales) EBIT = 0.5X after tax earnings = 0.5(1-0.3)X = 0.35X so 0.35X = 4 X = 11.43million in sales

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