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6 May, 08:26

For 2018, Gourmet Kitchen Products reported $22 million of sales and $19 million of operating costs (including depreciation). The company has $15 million of total invested capital. Its after-tax cost of capital is 10%, and its federal-plus-state income tax rate was 36%. What was the firm's economic value added (EVA), that is, how much value did management add to stockholders' wealth during 2018?

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  1. 6 May, 09:38
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    The firm's economic value added (EVA), that is, how much value did management add to stockholders' wealth during 2018 is $0.42 million

    Explanation:

    Net operating profit = (22 million - 19 million) * (1 - 0.36)

    = $1.92 million

    EVA = net operating profit after taxes - invested capital*WACC

    = 1.92 million - 15 million*0.10

    = $0.42 million

    Therefore, The firm's economic value added (EVA), that is, how much value did management add to stockholders' wealth during 2018 is $0.42 million
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