The Coca-Cola Company uses EVA to evaluate top management performance. In 2008, Coca-Cola had net operating income

Question:

The Coca-Cola Company uses EVA to evaluate top management performance. In 2008, Coca-Cola had net operating income of $8,446 million, income taxes of $1,632 million, and average noncurrent liabilities plus shareholders’ equity of $27,531 million. The company’s capital is about 15 percent long-term debt and 85 percent equity. Assume that the after-tax cost of debt is 5 percent and the cost of equity is 11 percent.

1. Compute Coca-Cola’s EVA. Assume definitions of after-tax operating income and invested capital as reported in Coca-Cola’s annual reports without adjustments advocated by Stern Stewart or others.

2. Explain what EVA tells you about the performance of the top management of Coca-Cola in 2008.

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...

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