Answer:
Economic value added = $640,000
Explanation:
given data
operating income = $3,500,000
tax rate = 36% = 0.36
total invested capital = $20,000,000
cost of capital = 8% = 0.08
solution
we get here EVA ( Economic value added) that is express as
Economic value added = Net Operating Profit After Taxes - Investment × WACC ..................1
here net Operating Profit After Taxes = $3,500,000 × (1 - 0.36)
net Operating Profit After Taxes = $2,240,000
so from equation 1
Economic value added = $2,240,000 - $20,000,000 × 0.08
Economic value added = $2,240,000 - $1,600,000
Economic value added = $640,000
