Problem: Reported $9,000 of sales, $6,000 of operating costs other than depreciation, and $1,500 of depreciation. The firm had no amortization charges, it had issued $4,000 of bonds that carry a 7% interest rate, and its federal-plus-state income tax rate was 40%. 2006 data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $1,000. By how much will the depreciation change cause the firm's net income and net cash flow to change?
Note that the company uses the same depreciation for tax and stockholder reporting.
EVA
· Net income = $600,000.
· Tax rate = 40%.
· Interest expense = $200,000.
· Total investor-supplied operating capital employed = $9 million.
· After-tax cost of capital = 10%.
What is the company's EVA?
-$300,000
-$180,000
$ 0
$200,000
$400,000