Calculate the economic value add for the business unit

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Problem 1: If a business unit generated $3,600,000 in BEFORE TAX PROFIT and had invested capital of $18,000,000 BUT had excellent terms with its suppliers so had CREDITORS of $2,000,000 and the Weighted Average Cost of Capital (WACC) for this business is 16%. Calculate the Economic Value Add (EVA) for this business unit and select which of the following is correct. (Assume a tax rate of 30%)

Select one:

a. $2,560,000 acceptable because EVA is greater than zero
b. Negative $40,000 unacceptable because EVA is less than zero
c. $2,520,000 Acceptable because EVAt is greater than zero
d. Positive $40,000 - performance is acceptable because EVA is greater than zero and therefore adding value

Reference no: EM133001329

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