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12 March, 02:17

Consider this case: Last year, Jackson Tires reported net sales of $80 million and total operating costs (including depreciation) of $52 million. Jackson Tires has $115 million of investor-supplied capital, which has an after-tax cost of 7.5%. If Jackson Tire's tax rate is 40%, how much value did it's management create or lose for the firm during the year?

A) 39.38 million

B) 2.66 million

C) 60.38 million

D) 8.18 million

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  1. 12 March, 05:39
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    D) 8.18 million

    Explanation:

    EBIT=80-52

    =$28 million

    EVA=net operating profit after tax - (capital invested*WACC)

    =$28 m (1-0.4) - ($115 m *.075)

    =$8.18 million
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