Calculating Economic Value Added
East Mullett Manufacturing earned operating income last year as shown in the following income statement:
Sales$3,750,000Cost of goods sold2,250,000Gross margin$1,500,000Selling and administrative expense1,200,000Operating income$ 300,000Less: Income taxes (@ 40%)120,000 Net income$ 180,000At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the value of operating assets was $1,400,000.
Total capital employed equaled $1,200,000. East Mullett's actual cost of capital is 4%.
Required: Calculate the EVA for East Mullett Manufacturing.