B is corrent because the requirement is to calculate the year-end economic value-added (EVA) amount. EVA is equal to net operating profit after taxes minus the after-tax weighted-average cost of capital multiplied by invested capital. In this case, net operating profit after taxes is equal to $180,000,000 [$300,000,000 – (40% × $300,000,000)]. The weighted-average cost of capital is equal to 10% [(15% + 5%) ÷ 2]. EVA is equal to $180,000,000 – (10% × $1,200,000,000) = $60,000,000.
A is incorrect because economic value added is equal to net operating profit after taxes minus the cost of the capital invested.
A is incorrect because economic value added is equal to net operating profit after taxes minus the cost of the capital invested.
D is incorrect because economic value added is equal to net operating profit after taxes minus the cost of the capital invested.
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