--%>
Assignment Help - homework help

Explain essential hypotheses for Economic Value Added

Which are the essential hypotheses so that valuations of the Economic Value Added (EVA) give similar results to discounting cash flows?

E

Expert

Verified

A Fernández (2002 and 2004) demonstrate that discounting expected EVAs gives the same value as discounting cash flows (so long as, from an accounting viewpoint, the increase in value of the Shareholders’ Equity equivalents the net income minus dividends). When E is the value of the shares and Evc is their book value, in that case:

E0 = Evc0 + VA (EVA; WACC), here EVAt = NOPATt – (Dt-1 + Evct-1) WACC

The Net Operating Profit after Taxes (NOPAT) is the profit of the unleveraged company as the profit before interests and after taxes. The Economic Value Added depends mainly upon two accounting parameters: its profit and the book value of debt and equity.

   Related Questions in Corporate Finance

  • Q : Why required return cannot computed by

    Why can we not compute the required return (Ke) by the Gordon-Shapiro model [P0 = Div0 (1+g) / (Ke – g)] in place of using the CAPM? As we identify the current dividend (Div0) and the current share price (P0), we can acquire the growth rate of the dividend by th

    		•
  • Q : Porters Primary activities Porter’s

    Porter’s Primary activities: 1. Inbound Logistics: • Suppliers’ details.• Storage details with respect to materials.• Details regarding pl

    		•
  • Q : Calculate the risk-free rate You have

    You have been given the following information on two corporations; you are to assume that thesecurities are correctly priced. My Corp, Inc. has a Beta of 1.25 and an Expected Return of .145;Your Corp, Inc. has a Beta of .75 and an Expected Return of .095. Based on the

    		•
  • Q : Structure of Interest rates Which

    Which determines the shape of the term structure of Interest rates?

    		•
  • Q : Illustrates beta and capital structure

    We are valuing a company, many smaller than ours, so as to buy it. As that company is too smaller than ours this will have no influence on the capital structure and at the risk of the resulting company. It is the reason why I believe this the beta and the capital stru

    		•
  • Q : Long-Term Financing Needed Long-Term

    Long-Term Financing Needed : - At year-end 2012, total assets for Ambrose Inc. were $1.2 million and accounts payable were $375,000. Sales, which in 2012 were $2.5 million, are expected to increase by 25% in 2013. Total ass

    		•
  • Q : How can auditor spot acts of creative

    How can auditor spot acts of creative accounting? Means let an illustration, the excess of provisions or the non-elimination of intra group transactions along with value added.

    		•
  • Q : Continuously compounded rate of return

    Solve for the stated annual rate, r equal to the continuously compounded rate of return implicit in turning $1 at the end of 1925 (beginning of 1926) into these reported valued from RWJ9 in 2008 Figure below: 1. Determine the state

    		•
  • Q : Portfolio return probability XY Company

    XY Company has made a portfolio of such three securities: The correlation coeffic

    		•
  • Q : DCF Analysis AB Corp. is in the

    AB Corp. is in the business of making white-board markers. They are computing the potential of investing in some new equipment that will enhance their manufacturing process.  The initial cost of the latest machinery is $470,000 plus a one-time installation cost o

    		•