Question
In: Finance
Celebrity Auto Parts, Inc. Facts and assumptions as of Dec. 31, 2017 EBIT for 2017 (millions)...
| Celebrity Auto Parts, Inc. | |||
| Facts and assumptions as of Dec. 31, 2017 | |||
| EBIT for 2017 (millions) | $ | 420 | |
| Company equity beta | 1.20 | ||
| Stock price | $ | 30 | |
| Number of shares outstanding (millions) | 200 | ||
| Book value of equity (millions) | $ | 3,500 | |
| Book value of interest-bearing debt (millions) | $ | 1,500 | |
| WACC | 9 | % | |
| Tax rate | 25 | % | |
Please refer to the information for Celebrity Auto Parts above. What was Celebrity’s EVA in 2017?
Multiple Choice
-
−$30 million
-
−$360 million
-
$765 million
-
−$135 million
-
None of the options are correct.
Solutions
Expert Solution
-$360 million
Economic Value Added(EVA) is an excess return (economic profit) over company's required return. We can calculate EVA with following equation :-
where,
NOPAT = Net Operating profit after tax (i.e EBIT(1-tax)
Invested Capital = Equity + Interest-bearing debts
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
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