XYZ Ltd was summarized income statement for the past two years are as shown.

2010 2009

Sh.000 Sh.000

Operating profit 6,500 5,500

Interest Expense 1,000 900

Profit before tax 5,500 4,600

Profit after tax 4,125 3,450

Further information is as follows:

i. The allowance for doubtful debts was KSh 300,000 as at 1st January 2009, KSh 250,000 as at 31 december 2009 and Ksh 350,000 as at December 2010.

ii. The company incurred depreciation expenses of Ksh 15,000 in both years.

iii. Capital employed (Equity plus debt) per the statement of financial position was ksh 33.5M at 1st Jan 2009 and 37M at Jan 1 2010.

iv. The pre tax cost of debt was 5% in each year. The estimated cost of equity was 12% in 2009 and 14% in 2010 the rate of corporate income tax was 25% during both years.

v. The company’s capital structure was 60% equity and 40% debt.

Required

Calculate Economic Value added

Answer rating: 100% (QA)

Economic Value Added EVA is a measure of a companys financial performance that assesses whether th... View the full answer