Determining the eva of herbal resources


Herbal Resources is a small but profitable producer of dietary supplements for pets. This is not a high-tech business, but Herbal"s earnings have averaged around $1.2 million after tax, largely on the strength of its patented enzyme for making cats nonallergenic. The patent has eight years to run, and Herbal has been offered $4 million for the patent rights. Herbal"s assets include $2 million of working capital and $8 million of property, plant, and equipment. The patent is not shown on Herbal"s books. Suppose Herbal"s cost of capital is 15 percent. What is its EVA?

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Finance Basics: Determining the eva of herbal resources
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