Consider the fictional GenCo Inc., a three-year-old company that specializes in olive-oil exports. The CEO is particularly proud of this year's results: sales are up 33% from $75.0M in 2021, and net income is up 50% from $2.8M in 2021. However, to assess whether GenCo Inc. is adding or destroying economic value, he decided to calculate EVA as well. Given a tax rate of 21% and a 2022 operating profit (EBIT) of $12.0M. Capital employed can be calculated by deducting the current liabilities (non-interest-bearing debt) of $5M from the total assets of $110M. Alternatively, it can be computed as the sum of GenCo's $60.0M in debt and $45.0M in equity. Either approach produces an estimate of $105M for the capital employed. Assuming that GenCo's beta is 0.9, the risk-free rate is 4%, and the appropriate Market Risk Premium is 8.4%, pays a 9.6% annual interest on its debt. Thus, the after-tax cost of capital of GenCo Inc. is 9.29%. What is the EVA of GenCo Inc?

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Calculating GenCo Incs EVA Step 1 Calculate the NOPAT Net Operating Profit ... View the full answer