Barton Industries has operating income for the year of $3,400,000 and a 39% tax rate. Its...

Barton Industries has operating income for the year of $3,400,000 and a 39% tax rate. Its total invested capital is $20,000,000 and its after-tax percentage cost of capital is 7%. What is the firm's EVA?

Expert Solution

Information provided:

Operating income= $3,400,000

Tax= 39%

Total invested capital= $20,000,000

After tax cost of capital= 7%

Net operating income after taxes= Operating income*(1- tax)

= $3,400,000*(1-0.39)

= $2,074,000.

EVA is calculated as below:

EVA= Net operating income after taxes – (Total invested capital*Cost of capital)

= $2,074,000 – ($20,000,000*0.07)

= $2,074,000 – 1,400,000

= $674,000.

Therefore, the EVA of the firm is $674,000.

jeff jeffy answered 1 year ago

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