Question
In: Finance
Sabre Technology recently reported the following information:
Sabre Technology recently reported the following
information:
Net income = $900,000.
Tax rate = 40%.
Interest expense = $200,000.
Total investor-supplied operating capital employed = $7.5
million.
After-tax cost of capital = 8%.
What is the company’s EVA? Hint: Work backwards from net income to
find EBT first and then EBIT.
Solutions
Expert Solution
economic value added can be calculated by
EBIT(1-tax) -(capital employed*after tax cost of capital)
given net income = 900000
tax rate is 40%
so EBT = netincome /(1-t) = 900000/(1-0.4) = 1500000
interst expense is 200000
EBIT = EBT+interest
= 1500000 + 200000 = 1700000
enterprice value = 1700000*(1-0.4) -7500000*8%(by formula mentioned above)
= 420000
jeff jeffy answered 2 years agoRelated Solutions
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