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Calculating Economic Value Added East Mullett Manufacturing earned operating income last year as shown in the following income statement: Sales $630,000 Cost of goods sold 380,000 Gross margin $250,000 Selling and administrative expense 174,400 Operating income $ 75,600 Less: Income taxes (@ 40%) 30,240 Net income $ 45,360 Total capital employed equaled $381,000. East Mullett's actual cost of capital is 8 percent. Required: Calculate the EVA for East Mullett Manufacturing. $

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Answer:

$14,880

Explanation:

The formula to compute EVA is shown below:

= Net operating income or earnings after taxes - (Total capital employed × cost)

= $45,360 - ($381,000 × 8%)

= $45,360 - $30,480

= $14,880

We simply applied the economic value added formula so that the accurate value can come.

All other information which is given is not relevant. Hence, ignored it

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