In your internship, the financial manager of "ABC" firm, specialized in the production and commercialization of car batteries, asks you to evaluate whether the firm creates value for its shareholders. The cost of capital is 10%. Sales $700,000; Cost of Goods Sold (COGS) $250,000; SG&A Expenses $10,000; Depreciation $50,000; Other Operating Expenses $10,000; Financial charges $2,000. The total invested capital is $750,000. The Corporate Tax rate is 40%. 1- Calculate the net operating profit after taxes (NOPAT). 2- Calculate the company's Economic value added (EVA). Interpret. 3- If the future EVAS are expected to grow at a constant growth rate of 12% for the next three years, calculate the market value added (MVA). Interpret.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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In your internship, the financial manager of "ABC" firm, specialized in the production and commercialization of car batteries, asks you to evaluate whether the firm creates value for its shareholders. The cost of capital is 10%. Sales $700,000; Cost of Goods Sold (COGS) $250,000; SG&A Expenses $10,000; Depreciation $50,000; Other Operating Expenses $10,000; Financial charges $2,000. The total invested capital is $750,000. The Corporate Tax rate is 40%.

1- Calculate the net operating profit after taxes (NOPAT).

2- Calculate the company's Economic value added (EVA). Interpret.

3- If the future EVAS are expected to grow at a constant growth rate of 12% for the next three years, calculate the market value added (MVA). Interpret.

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