--%>
Assignment Help - homework help

Explain essential hypotheses for Economic Value Added

Which are the essential hypotheses so that valuations of the Economic Value Added (EVA) give similar results to discounting cash flows?

E

Expert

Verified

A Fernández (2002 and 2004) demonstrate that discounting expected EVAs gives the same value as discounting cash flows (so long as, from an accounting viewpoint, the increase in value of the Shareholders’ Equity equivalents the net income minus dividends). When E is the value of the shares and Evc is their book value, in that case:

E0 = Evc0 + VA (EVA; WACC), here EVAt = NOPATt – (Dt-1 + Evct-1) WACC

The Net Operating Profit after Taxes (NOPAT) is the profit of the unleveraged company as the profit before interests and after taxes. The Economic Value Added depends mainly upon two accounting parameters: its profit and the book value of debt and equity.

   Related Questions in Corporate Finance

  • Q : Is the market risk premium a parameter

    Is the market risk premium a parameter, for the world economy or for the national economy?

    		•
  • Q : Explain lognormal random walk based on

    Explain lognormal random walk based on Brownian motion.

    		•
  • Q : Problems under Time Value of Money One

    One of the projects the US loan would fund is to build earthquake-resistant buildings. The projectwill begin in March 2013, last for two years and is expected to have the following expenditures:start-up costs of $200,000 paid at the beginning of the first month; renta

    		•
  • Q : What are the different types of

    What are the different types of mathematics found in quantitative finance?

    		•
  • Q : Problem on Stock per share value ABC

    ABC Company plans to buy back 1 million shares of its own stock from its cash reserves at $50 a share. This will raise the bankruptcy costs by $10 million, and the debt/assets ratio from 35% to 40%. The income tax rate of the company is 30%. Determine the value of the

    		•
  • Q : EPS problem XY Corporation is an all

    XY Corporation is an all equity firm with a total value of $20 million. It needs an additional capital of $5 million, which may be either equity, or debt at the interest rate of 10%. After the new capitalization, the expected EBIT is $5 million, with standard deviatio

    		•
  • Q : Who explain match theoretical & market

    Who demonstrated that how to match theoretical and market prices for normal bonds?

    		•
  • Q : Who wrote famous paper- distribution of

    Who wrote famous paper of on distribution of cotton price returns?

    		•
  • Q : Case Study 2 You have joined Zurich

    You have joined Zurich Pvt. Ltd as a Finance manager. You are given the following information: Zurich Pvt Ltd. is a diversified manufacturing firm dealing with electrical appliances. In 2012, the firm reported an operating income of Rs. 857.60 million and faced a tax rate of 35% on income. The firm

    		•
  • Q : Explain new methodology of standard

    Explain new methodology of standard market practice.

    		•