Invested capital: $225 Market capitalization: $231 Tax rate: 40.0% Interest expense: $12 Depreciation and amortization expense: $25 SG&A expense: $10 Dividend expense: $6 Debt: $130 COGS: $26 Sales: $90 Pretax cost of equity: 11.4% Pretax cost of debt: 5.0% The economic value added of CR Industries is closest to: A) $2.66 million. B) - $4.53 million. C) - $8.13 million. D) $0.07 million. Made calc (or conceptual) error in calclulating NOPAT. What NOPAT you get?
90-26-10-25=29*.6=17.4
what is WACC?
oh god…I substracted Interest expense and calculated NI and treated as NOPAT…crap Thanks MWVt9
NOPAT = (90 - 26 -10 - 25)(1 - 0.40) = 17.4 A = 231 L = 130 E = 101 L/A = 0.5628 E/A = 0.4373 0.05*0.60*0.5628 + 0.114*0.4373 = 0.016884 + 0.0498522 = 0.0667362 $WACC = 225*0.0667362 = 15.01308 17.4 - 15.015645 EVA = 2.384355? Where have I gone wrong? why is the answer not coming for me?
moregreat Wrote: ------------------------------------------------------- > oh god…I substracted Interest expense and > calculated NI and treated as NOPAT…crap > > Thanks MWVt9 Remember that since you are using WACC as the capital charge that it has to be before interest. Compare this to RI (where NI is used) and you will use the required return on equity.
Hold on. Back in a minute.
How did you get WACC weightage? Invested Capital = LTD + Equity= 225 Market Capitalization = 231 (Is it Asset? How did you get 130 and 101 bro?
I get approx 2.40M also. WACC of approx 6.66%*Invested Capital
dinesh your error is becuase you have taken market cap instead of Invested Cap? EVA = NOPAT – (WACC * invested capital).
cfaboston28 Wrote: ------------------------------------------------------- > How did you get WACC weightage? > > Invested Capital = LTD + Equity= 225 > > Market Capitalization = 231 (Is it Asset? > > How did you get 130 and 101 bro? 130 is given.
moregreat, SHow me the calc for $wacc
mwvt9 Wrote: ------------------------------------------------------- > cfaboston28 Wrote: > -------------------------------------------------- > ----- > > How did you get WACC weightage? > > > > Invested Capital = LTD + Equity= 225 > > > > Market Capitalization = 231 (Is it Asset? > > > > How did you get 130 and 101 bro? > > 130 is given. OK I am officially blind now.This allergy of mine taking toll out of me.
Invested cap : 225 Since Debt is 130 ==57.78% Therefore Equity is 42.2%
I think it should be Debt 130/225=57.7 Equity 95/225=42.2 .577(.05*.6)+.422(.114)=.0654? 17.4-(225*.0654)=2.68 A?
Why wouldn’t we use market cap in this question?
mwvt9 Wrote: ------------------------------------------------------- > Why wouldn’t we use market cap in this question? I guess you should use Market cap for MVA calc instead of EVA
I can’t even remember what that is. ^
I thought Market capitalization of $231 was equity. Market Cap Definition: the value of a corporation as determined by the market price of its issued and outstanding common stock. So, Debt + Equity = Asset ==> 130 + 321 = 361. D/A = 0.3601 E/A = 0.639 WACC = 0.3601 (0.05)(0.6) + 0.639(0.114) = 8.36% EVA = 17.4 - (225*0.0836) = -1.41 ???
prob_13 Wrote: ------------------------------------------------------- > I thought Market capitalization of $231 was > equity. > > Market Cap Definition: the value of a corporation > as determined by the market price of its issued > and outstanding common stock. Mkt Cap isn’t Equity. Equity is Assets - Liabilities. If IC is Equity plus Debt (technically LT but nothing else is shown), then you must use IC. Ignore Mkt Cap. I agree with A.