For 2012, Everyday Electronics reported $22.5 million on sales and $18 million of operating costs (including depreciation). The company has $15 million of investment-supplied operating capital. Its weighted average cost of capital is 9% and its federal-plus-state income tax rate was 35%. What was the firm’s Economic Value Added (EVA), that is, how much value did management add to stockholders’ wealth during 2012?

$1,575,000

Explanation:

Net operating profit before taxes:

= Sales - operating costs

= $22,500,000 - $18,000,000

= $4,500,000

Net operating profit after taxes:

= Net operating profit before taxes - Taxes

= $4,500,000 - ($4,500,000 × 0.35)

= $4,500,000 - $1,575,000

= $2,925,000

Economic Value Added:

= Net Operating Profit After Taxes - (Operating Capital × Weighted Average Cost of Capital)

= $2,925,000 - (15,000,000 × 9%)

= $2,925,000 - $1,350,000

= $1,575,000

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

hope this