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Unformatted text preview: Revised Economic Profit $31,888.26 $24,723.44 $16,445.81 MVA $57,236.79 Revised NOPAT equals PFCF + Ec. Deprn The use of economic depreciation implies that economic profit in all years is positive (indicating a positive NPV project). On the other hand, the "regular" EVA analysis shows that economic profit is negative in the first two years and positive only in the third year. The project has backloaded earnings as can be seen from the net income over the three years. Solution Legend = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output Assume machine life of three years Backloaded earnings We can see that ROIC has an intermediate value under the revised economic profit approach whereas it tends to seem too low or too high under the standard economic profit approach....
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- Summer '09
- Cost Of Capital, Economic Profit, Generally Accepted Accounting Principles