Lumber corporation is a private company and the managers want to know how much of economic value
Question:
Lumber corporation is a private company and the managers want to know how much of economic value has been added during the current year. So they decided to use EVA to measure financial performance .The company provided the management accountant department with the following financial data found in
the table below:
Current liabilities 65,300
Current Assets 30%
Long term liabilities [Bond Payable] 185,200
Equity 150,000
Research & development 25,000
Training expenses 13,000
Tax rate 25%
Net income 45,500
Sales 76200
Cogs 33,500
Interest paid on debt 17,000
Risk-free rate 6%
Risk premium 6.5%
Assume that current liabilities are not the interest-bearing obligation
Cost of equity is government bond rate + risk premium
REQUIRED
1. Calculate tax, interest expense, and EBIT (operating income)
2. Calculate the EBIT after tax.
3. Calculate the total assets.
4. Calculate working capital employed {WCE}.
5. What is the WACC of the company?
6. Calculate the economic value added [EVA]
7. What will happen if a company has negative EVA for a while?.
Expert Answer:
EVA or Economic Value addition is method to measure financial performance of entity Positive EVA sho... View the full answer
