Afirm has an ebit of $22 million, total invested capital of $74 million, and the average cost of funds of 12%. the firm has a marginal tax rate of 35% and 4.2 million shares of the firm are outstanding. what is the eva of the firm?

ANSWER

Find out the  EVA of the firm.

To proof

As given

A firm has an EBIT of $22 million

total invested capital of $74 million,

the average cost of funds of 12%.

The firm has a marginal tax rate of 35% and 4.2 million shares of the firm are outstanding.

Formula

calculate economic value

EVA = EBIT (1-T) - [(Average cost of funds) × (Invested capital)]

12 % is written in the decimalform

= 0.12

35 % is written in the decimal form

=0.35

put the value in the formula

= 22× ( 1- 0.35) - [ (0.12 × 74) ]

= 22 × 0.65 - 8.88

= $5.42million

Therefore  $5.42million is the EVA of the firm

Hence proved

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