A Firm that has existing assets in which it has capital invested of S100 million. Assume these additional facts about the firm

(A) The after-tax operating income on assets in place is $15 million. This return on capital of 15' is expected

to be sustained in the future and the company has a cost of capital of 10%.

(b) At the beginning of each of the next 5 years, the firm is expected to make investments of $10 million cash.

These investments are also expected to carn 15% as a

return on capital and the cost of capital is expected to

remain 10%.

(c) All assets and investments are expected to have infinite lives and the assets in place and the investments made in the first five years will make 15% a year in perpetuity, with no growth

You are required to calculate:

(i) EVA

(it) Value of the firm by using an economic value added

approach

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