teetee72 teetee72

21-11-2022
Business

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the abs company has a capital base of $100 million, an opportunity cost of capital ( k) of 15%, a return on assets (roa) of 9%, and a return on equity (roe) of 18%. what is the economic value added (eva) for abs?

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paridhivt paridhivt

26-11-2022

The economic value added (EVA) for ABS is: -$6 million

What is economic value added?

Economic value added in corporate finance refers to an estimation of a firm's economic profit, or the value created above the required return for the company's shareholders, as part of fundamental research. Net profit less capital charge for the firm's capital raise equals EVA.

Calculate the difference between the actual rate of return on assets and the cost of capital, then multiply that figure by the net investment in the company to arrive at economic value added.

Economic Value Added (EVA) is significant since it is used to gauge how profitable firm projects are, reflecting managerial effectiveness in the process.

Economic value added = (return on assets x Cost of capital) x Capital base.

=(15%-9%)x100.000.000 = -$6million

Learn more about economic value added, here

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