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Computing EVA and Comparing Performance

A company that uses EVA reported the following results for 20X4 and 20X5 (in millions):

..............................................20X4............20X5
Pretax operating Income.......5,698...........5,700
Cash Taxes...........................1,676...........1,600

Average adjusted invested capital was $20,308 million in 20X4 and $18,091 million in 20X5, and the cost of capital was 9% in both 20X4 and 20X5.

1. Compute the Company's EVA for 20X4 and 20X5.
2. Compare the company's performance in creating value for its shareholders in 20X5 with that in 20X4.

Solution Preview

The calculation for EVA = NOPAT - (Captial x cost of capital)

We can therefore input actual figures into our calculation.

5,698 1676 = 4,022 - (20,308 x .09) =
4022 - 1827.72 = ...

Solution Summary

This solution provides the correct calculations with explanations to the EVA questions listed. Includes 1 reference.

$2.19