AT&T, Inc. (T) 8-2. Economic value added The business need to make higher return than the...

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AT&T, Inc. (T) 8-2. Economic value added The business need to make higher return than the WACC to be profitable. The WACC is the opportunity cost of the capital from the capital providers. The dollar amount business can achieve beyond the opportunity cost of capital is called economic value added. EBIT = ?? Assume T = Tax rate = 35% Total capital from financing = (Debt + Preferred + Equity) Economic value added = EBIT * (1-T) – (Total capital) * WACC. Tax rate ?? ЕBIT ?? EBIT * (1- T) ?? WACC ?? Investor supplied capital ?? Economic value added ?? AT&T, Inc. (T) 8-2. Economic value added The business need to make higher return than the WACC to be profitable. The WACC is the opportunity cost of the capital from the capital providers. The dollar amount business can achieve beyond the opportunity cost of capital is called economic value added. EBIT = ?? Assume T = Tax rate = 35% Total capital from financing = (Debt + Preferred + Equity) %3D Economic value added EBIT * (1-T) - (Total capital) * WACC. !! Economic value added tax rate 9% 3,714.00 ЕBIT ЕBIT (1-T) WACC Investor supplied capital 3,366.37 4.02% 239,584.26 Economic value added -6,260.24 Economic value added = EBIT * (1-T) - (Total capital) * WACC. Economic value added tax rate 9% 3,714.00 3,366.37 EBIT EBIT (1- T) WACC 4.02% Investor supplied capital Economic value added 239,584.26 -6,260.24 Question: Is the economic value added positive or negative? What is the implication from the result? AT&T, Inc. (T) 8-2. Economic value added The business need to make higher return than the WACC to be profitable. The WACC is the opportunity cost of the capital from the capital providers. The dollar amount business can achieve beyond the opportunity cost of capital is called economic value added. EBIT = ?? Assume T = Tax rate = 35% Total capital from financing = (Debt + Preferred + Equity) Economic value added = EBIT * (1-T) – (Total capital) * WACC. Tax rate ?? ЕBIT ?? EBIT * (1- T) ?? WACC ?? Investor supplied capital ?? Economic value added ?? AT&T, Inc. (T) 8-2. Economic value added The business need to make higher return than the WACC to be profitable. The WACC is the opportunity cost of the capital from the capital providers. The dollar amount business can achieve beyond the opportunity cost of capital is called economic value added. EBIT = ?? Assume T = Tax rate = 35% Total capital from financing = (Debt + Preferred + Equity) %3D Economic value added EBIT * (1-T) - (Total capital) * WACC. !! Economic value added tax rate 9% 3,714.00 ЕBIT ЕBIT (1-T) WACC Investor supplied capital 3,366.37 4.02% 239,584.26 Economic value added -6,260.24 Economic value added = EBIT * (1-T) - (Total capital) * WACC. Economic value added tax rate 9% 3,714.00 3,366.37 EBIT EBIT (1- T) WACC 4.02% Investor supplied capital Economic value added 239,584.26 -6,260.24 Question: Is the economic value added positive or negative? What is the implication from the result?

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Economic value added is negative Economic Value Added Ta... View the full answer