DPA Private Limited is a firm with $200,000 equity capital and $250,000 debt capital. It is considering
Question:
DPA Private Limited is a firm with $200,000 equity capital and $250,000 debt capital. It is considering an opportunity that will provide a net operating profit after-tax (NOPAT) of $70,000. The corporate tax rate is 30%. Assume the firm's after-tax weighted average cost of capital (WACC) is 18%.
(i) What is the total dollar amount of funds (capital) employed by the firm?
(ii) Calculate the firm's Economic Value Added (EVA) and explain if the firm should accept or reject this investment opportunity.
(iii)Financial ratio analysis is useful for evaluating a company's performance over time and against its competitors. However, there are also limitations that we must be aware of when using ratio analysis. Discuss TWO such limitations.
Entrepreneurial Finance
ISBN: 978-1305968356
6th edition
Authors: J. Chris Leach, Ronald W. Melicher