BEC – EVA… please help!!!!

  • This topic has 6 replies, 3 voices, and was last updated 11 years ago by Anonymous.
  • Creator
    Topic
  • #186719
    Anonymous
    Inactive

    Can someone help on this problem from Ninja MCQ. I’m not sure why the answer $180M (choice D). I recall seeing the same exact question on Wiley TB and the answer there was $60M (choice B).

    Zig Corp. provides the following information:

    Pretax operating profit $300,000,000

    Tax rate 40%

    Capital used to generate profits 50% debt, 50% equity $1,200,000,000

    Cost of equity 15%

    Cost of debt 5%

    What of the following represents Zig’s year-end economic value added amount?

    A.

    $0

    B.

    $60,000,000

    C.

    $120,000,000

    D.

    $180,000,000

Viewing 6 replies - 1 through 6 (of 6 total)
  • Author
    Replies
  • #578894
    Anonymous
    Inactive

    You have to use WACC to calculate the EVA. So 60,000,000*15% for equity and 60,000,000*5% for debt. Remember, EVA is the investment * hurdle rate (or WACC). And then you have to use the after tax profit, so multiply the operating profit by 60% and subtract the WACC.

    #578895
    JamesBJames
    Participant

    I also got B. 600m * .5 + 600m * . 15 = WACC of 10%; 10% * NBV of 1.2b is 120m; EVA is 300m * (1 – .4) – 120m = 60m.

    I think I saw this in Becker before, too, and the answer was also B.

    FAR: May 1st, 2014 - 91
    AUD: May 29th, 2014 - 97!
    BEC: July 16th, 2014 - 91
    REG: August 29th, 2014 - 88

    Licensed December 2015

    Feel free to add me on LinkedIn by clicking my username!

    #578896
    Anonymous
    Inactive

    Thanks @Amanda_88 I'm just confused why 2 different test banks would have 2 different answers

    #578897
    Anonymous
    Inactive

    Sorry, didn't see that part of the question 🙂 I saw this in Wiley TB…let me go see which answer was correct.

    #578898
    Anonymous
    Inactive

    60,000 is the correct answer according to Wiley, which I see you already posted too lol. I think Ninja is wrong

    #578899
    Anonymous
    Inactive

    cool. i just want to make sure, in case I come across this question on my exam day!

    Thanks @Amanda_88 and @JamesBJames for clearing this up…

    Good luck!!!

Viewing 6 replies - 1 through 6 (of 6 total)
  • The topic ‘BEC – EVA… please help!!!!’ is closed to new replies.