In: Finance
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?
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.