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ECONOMIC VALUE ADDED

Company A has a WACC of 10%. The income statement is below:

Sales $10 million
Operating Costs $6 million
__________
Operating Income (EBIT) $4.0 million
Interest Expense $2.0 million
___________
Earnings before taxes (EBT) $2.0 million
Taxes (40%) $0.8 million
___________
Net Income $1.2 million

How do I calculate the EVA?

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ECONOMIC VALUE ADDED
Economic Value Added is often defined as the value of an activity that is left over after subtracting from it the cost of executing that activity and the cost of having lost the opportunity of investing consumed resources in an alternative activity.

In Business terms, one could calculate EVA as Income from Operations - rate of interest in sovereign debt. If sovereign debt can be considered an alternative opportunity to invest working capital and equity.
The basic formula is :

EVA = NOPAT - ...

Solution Summary

This explains the steps to compute the ECONOMIC VALUE ADDED

$2.19