At the end of 2011 Home Depot’s total capitalization amounted to $29,001 million

Question

At the end of 2011 Home Depot’s total capitalization amounted to $29,001 million. In 2012 debt investors received interest income of $638 million. Net income to shareholders was $4,517 million. (Assume a tax rate of 35%.)

Calculate the economic value added assuming its cost of capital is 10%. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Calculate the economic value added assuming its cost of capital is 10%. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Explanation / Answer

Economic Value added = net operating income – capitalization amount x cost of capital

                                          = ( 4571 + 638 x(1-0.35)) – 29,001 x 0.10   million

                                          = 4985.70 - 2900.10 million

                                          = 2085.60 million

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