Problem 307 EVA Britton Industries has operating income for

Problem 3-07 EVA Britton Industries has operating income for the year of $3,200,000 and a 35% tax rate. Its total invested capital is $20,000,000 and its after-tax percentage cost of capital is 6%. What is the firm\'s EVA?

Solution

EVA = NOPAT - (WACC*invested capital)

NOPAT = operating income*(1-tax rate)

= 3,200,000*(1-35%)

= $2,080,000

Thus EVA = 2,080,000 - (6%*20,000,000)

= $880,000