AT&T, Inc. (T) 8-2. Economic value added The business need to make higher return than the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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?
Expert Answer:
Answer rating: 100% (QA)
Economic value added is negative Economic Value Added Ta... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
Emma Nalic owner a wedding planning business need to make the final adjusting entries to prepare the end of year financial statements. No adjusting entries had been made during the year. Emma Nalic...
-
What is the opportunity cost of an extra 10h shift at work, if your alternatives are to spend a maximum of 4h with friends at a bar (valued at 30$/h), doing problem sets for a maximum of 2h (valued...
-
What is the opportunity cost of economic growth?
-
Recovery Experts (RE) specializes in data recovery from crashed hard drives. The price charged varies based on the extent of damage and the amount of data being recovered. RE offers a 10% discount to...
-
(a) Use Excel to prepare an appropriate type of chart (bar, line, pie, scatter) to display the following data. Modify the default colors, fonts, etc., as you judge appropriate to make the display...
-
Sprouse Company is considering an investment in equipment that will replace direct labor. The equipment has a cost of \($64,000,\) with a \($6,000\) residual value and an 8-year life. The equipment...
-
The following procedures were recently installed by Raspberry Creek Company: a. After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The...
-
What demographic change will have the most significant influence either positive or negative on the automobile industry. Cite all references used
-
Tisha has operated her bakery business as a sole proprietorship for many years. However, she recently incorporated her business for the limited liability protection. To form the corporation, she...
-
Determine a and b so that f(x) = ax fits the following data in the least-squares sense. X y 0.5 0.49 1.60 1.0 1.5 3.36 2.0 2.5 6.44 10.16
-
How does an auditor test whether recorded receivables represent bona fide rights of the client?
-
Ashton Tate, an in-charge auditor, has completed the year end physical inventory observation at a large wholesaler of automotive parts. Tate reviewed managements inventory-taking instructions before...
-
Under Statement on Auditing Standards No. 57, "Auditing Accounting Estimates," an auditor is responsible for: a. Making accounting estimates. b. Evaluating the reasonableness of management's...
-
Positive accounts receivable confirmations are appropriate when: a. There is reason to believe that a substantial number of accounts may be in dispute. b. Control risk is low. c. Accounts receivable...
-
Late in December 1999, your public accounting firm accepted an audit engagement at Fine Jewelers, Inc., a corporation that maintains a diamond wholesale store in New York City and retail jewelry...
-
If the composition of the target population does not match the composition of the collected sample, a good tactic would be to ______. Question 1 options: a) Weight the data to match the target...
-
The polar coordinates of a point are given. Find the rectangular coordinates of the point. (-1, - /3)
-
a. Why is France so strict about designating the vineyards that can use the Champagne label? b. Explain who most likely opposes this plan. Champagne exports have tripled in the past 20 years. That...
-
Why do you think it is not possible to buy insurance against having to put up with a low-paying, miserable job? Explain why a market in insurance of this type would be valuable to workers but...
-
a. How are Callaway and Nike attempting to maintain economic profit? b. Draw a graph to illustrate the cost curves and revenue curves of Callaway or Nike in the market for golf clubs for women. c....
-
Department A of Racine Company has a gross profit of \($140,000,\) representing 35% of net departmental sales. Management believes that an increase of \($36,000\) in advertising will increase volume...
-
What is the maximum amount that one division should pay to another division of the same company for a component needed in manufacturing its product?
-
The following summary data are from a performance report for Sterling Company for May, during which 9,600 units were produced. The budget reflects the companys normal capacity of 10,000 units. a....
Study smarter with the SolutionInn App