p23-30 - P 23-30 1 The EVA formula is as follows Net...

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P 23-30 1. The EVA ® formula is as follows: Net operating profit after tax - (WACC x Invested capital assets) In 2008: The net operating profit after tax is $1,000,000 x (1 - 45%) = $550,000 The invested capital is $18,930,000 - $230,000 = $18,700,000 (Invested capital = total liabilities & equity - total current liabilities) Sperry’s EVA ® in 2008 is as follows: $550,000 - (10% x $18,700,000) = - $1,320,000 In 2009: The net operating profit after tax is $1,400,000 x (1 - 45%) = $770,000 The invested capital is $24,610,000 - $110,000 = $24,500,000 (Invested capital = total liabilities & equity - total current liabilities) Sperry’s EVA ® in 2008 is as follows: $770,000 - (11% x $24,500,000) = - $1,925,000 2. EVA ® = Net operating profit after tax - (WACC x Invested capital assets) - Sperry’s operating income before interest and tax increased 40% from $1,000,000 in 2008 to $1,400,000 in 2009. Since the average tax rate remained the same in both years, Sperry’s net operating profit after tax also increased by 40% from $550,000 in 2008 to $770,000 in 2009. - Sperry’s i nvested capital increased about 31% from $18,700,000 in 2008 to $24,500,000 in 2009. In addition, the WACC increased 1% from 10% in 2008 to 11% in 2009. So that
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Sperry’s (WACC x Invested capital assets)
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