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Calculating Economic Value Added (EVA)

The document presents two problems calculating Economic Value Added (EVA) for two companies, ABC Corporation and XYZ Inc., based on their financial data for the year 2024. For ABC Corporation, the EVA is calculated as P1,500,000, while for XYZ Inc., the EVA is P420,000. The calculations involve determining Net Operating Profit After Taxes and the Cost of Capital using the Weighted Average Cost of Capital.

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214 views1 page

Calculating Economic Value Added (EVA)

The document presents two problems calculating Economic Value Added (EVA) for two companies, ABC Corporation and XYZ Inc., based on their financial data for the year 2024. For ABC Corporation, the EVA is calculated as P1,500,000, while for XYZ Inc., the EVA is P420,000. The calculations involve determining Net Operating Profit After Taxes and the Cost of Capital using the Weighted Average Cost of Capital.

Uploaded by

breechjoshua
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

Sample Problem: Calculating Economic Value Added (EVA)

Problem 1. ABC Corporation had the following financial information for the year 2024:

Net Operating Profit After Taxes (NOPAT): P3,500,000


Total Capital Employed: P20,000,000
Weighted Average Cost of Capital (WACC): 10%

Question:
Calculate the Economic Value Added (EVA) for ABC Corporation in 2024.

Answer:

Net operating profit after taxes P 3,500,000


Less: Cost of capital (P20,000,000 x WACC of 10%) 2,000,000
EVA p 1,500,000

Problem 2. XYZ Inc. provides the following financial data for 2024:

EBIT (Earnings Before Interest and Taxes): P6,000,000


Depreciation Expense: P1,000,000
Tax Rate: 25%
Net Book Value of Capital at Beginning of Year: P30,000,000
Net Capital Expenditures (CapEx - Depreciation): P4,000,000
Weighted Average Cost of Capital (WACC): 12%
Question:
Calculate the Economic Value Added (EVA) for XYZ Inc. in 2024.

Answer:
Net operating profit after tax ( P6,000,000 x ( 1 – 25%) P 4,500,000
Less: Cost of capital ( P 30,000,000 + 4,000,000) x 12% 4,080,000
EVA P 420,000

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