Determining Lake's EVA and MVA
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EBITDA $120 million
Depreciation expensive $20 million
Net Income $7 million
Capital Investment $300 million
Book value of equity capital $200 million
No. of shares of common stock outstanding $5 million
Tax rate $40 percent
Cost of Capital $10 percent
Market price per share of common stock $ 30
a) Determine Lakes's EVA
b) Determine Lake's MVA
c) Explain the difference between EVA and MVA.
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Solution Summary
The solution explains how to calculate the EVA and MVA and the difference between the two.
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a) EVA = NOPAT - Cost of Capital X Capital Investment
NOPAT = Net Operating Profit After Tax = EBIT X (1-Tax Rate)
EBIT = EBITDA - Depreciation = 120-20 = $100 million
NOPAT = 100 X (1-0.4) = $60 million
Capital Investment = 300 million
Cost of Capital = 10%
EVA = 60 - 10% ...
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