Question
Honbase Corporation is a major supplier to makers of outdoor power equipment. According to the company's annual report, management subscribes to the premise that the
Honbase Corporation is a major supplier to makers of outdoor power equipment. According to the company's annual report, "management subscribes to the premise that the value of our company is enhanced if the capital invested in its operations yields a cash return that is greater than that expected by the providers of capital." The following data are from Honbase Corporation annual report that incorporate EVA adjustments to operating profit and average invested capital (amounts in thousands):
Requirements
1. Compute the EVA for Honbase Machinery for 20X1 and 20X2.
2. Did Honbase Machinery's overall performance improve from 20X1 and 20X2? Explain.
Data table 20X1 20X2 Adjusted before tax operating profit $ 72,200 $ 44,900 Cash taxes 12,900 19,900 1,590,000 1,552,000 Adjusted average invested capital Cost of capital 11.3 % 11 %Step by Step Solution
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