The firm reported an EBIT of $1 billion on revenues of $15 billion last year. · These earnings were after research and development expenses of $1 billion. · You have capitalized research expenses, using a 5-year amortizable life, and estimated a value for the research asset of $3 billion, and amortization of $600 million on this asset for last year. · Last year, the firm had capital expenditures of $800 million and depreciation of $500 million. · There are no working capital requirements. · The book equity at the beginning of the year was $5 billion and the book debt was $1 billion. · The firm has operating lease commitments of $1 billion each year for the next 5 years and none thereafter. · The beta for the stock is 1.2. The pre-tax cost of debt is 7%, the risk-free rate is 6% and the market risk premium is 4%. The current market debt-to-value ratio is 20%. · The tax rate for the firm is 40%.

a. Estimate the firm’s after-tax operating income, adjusted for both R&D expenses and operating leases.

b. Estimate the book value of capital at this firm, adjusted for R&D expenses and operating leases.

c. Estimate the reinvestment rate at this firm, adjusted for R&D expenses and operating leases.

d. Estimate the economic value added by this firm last year, using the operating income and book value of capital, adjusted for R&D expenses and operating leases.