Question: (Economic Value Added) Bubble Co. has $10 million in assets that are financed 60 percent by equity and 40 percent by debt. The interest rate on debt is 7 percent while the opportunity cost of equity capital is estimated to be 12 percent. If the operating return on assets is 15 percent calculate if the company creates or destroys the value for shareholders. What does EVA measure and how should it be interpreted?
