Responsibility Accounting and Performance Measures MCQs

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Accounting MCQ21- Economic Value Added (EVA) Wholesale products division of Watco

  • A. $ 5,000,000
  • B. $25,000,000
  • C. $30,000,000
  • D. $13,000,000
  • (D) The requirement is to calculate EVA for the division. Answer (D) is correct because EVA is calculated as net operating profit after taxes (NOPAT) minus the capital charge on invested capital. In this case, NOPAT is equal to net operating profit before interest and taxes ($30,000,000) minus taxes ($30,000,000 � 40%), which is equal to $18,000,000. EVA is then equal to $13,000,000 [$18,000,000 � ($50,000,000 � 10%)].
  • Correct Answer: Option D