This document contains financial information for a company including income statements, balance sheets, sales and cost data by product line. It then provides a tree analysis summarizing the company's cost of capital calculation and drivers of economic value added (EVA), showing the return on net assets (RONA) of 20.25% exceeds the weighted average cost of capital (WACC) of 9.72%, resulting in positive EVA of $84.24.

1. ($ in Millions)
Market Data
Income Taxe Rate, T 40%
Rate of Return of a Market Index, Rm 12%
Risk-Free Rate, Rf 7%
Beta Coefficient 1.10
Before-Tax Cost of Debt 8%
Percentage of Equity in Capital Structure 60%
Percentage of Debt in Total Capital Structure 40%
Sales & Variable Cost of Goods Sold
Product Line 1 Product Line 2 Product Line 3 Product Line 4 Product Line 5 Product Line 6 Total
Unit sales price $9.00 $15.00 $20.00 $30.00 $49.00 $59.00 $182.00
Variable manufactoring cost per unit $5.00 $8.00 $14.00 $10.00 $20.00 $20.00
Contribution Margin per Unit $4.00 $7.00 $6.00 $20.00 $29.00 $39.00
Expected Unit Sales in (Millions) 2.00 3.00 4.00 5.00 6.00 7.00 27.00
Sales in $ $18.00 $45.00 $80.00 $150.00 $294.00 $413.00 $1,000.00
Variable manufactoring cost $10.00 $24.00 $56.00 $50.00 $120.00 $140.00 $400.00
Total Contribution Margin $8.00 $21.00 $24.00 $100.00 $174.00 $273.00 $600.00
Fixed Overhead Expenses
Selling Overhead Administration Overhead Factory Overhead Total
Cost Center 1 $200.00 $0.00 $0.00 $200.00
Cost Center 2 $0.00 $100.00 $0.00 $100.00
Cost Center 3 $0.00 $0.00 $100.00 $100.00
Cost Center 4 $0.00 $0.00 $0.00 $0.00
Cost Center 5 $0.00 $0.00 $0.00 $0.00
Cost Center 6 $0.00 $0.00 $0.00 $0.00
Cost Center 7 $0.00 $0.00 $0.00 $0.00
Cost Center 8 $0.00 $0.00 $0.00 $0.00
Cost Center 9 $0.00 $0.00 $0.00 $0.00
Cost Center 10 $0.00 $0.00 $0.00 $0.00
Cost Center 11 $0.00 $0.00 $0.00 $0.00
Cost Center 12 $0.00 $0.00 $0.00 $0.00
Cost Center 13 $0.00 $0.00 $0.00 $0.00
Total $200.00 $100.00 $100.00 $400.00
Assets
Current Assets:
Cash & Cash Equivalent $100.00
Accounts Receivable $100.00
Material Inventory $100.00
Finished Good Inventory $100.00
Total Current Assets $400.00
Fixed Assets:
Land $100.00
Building and Equipment $700.00
Accumulted Deprreciation ($200.00)
Total Fixed Assets $600.00
Interest Free Liabilities:
Trade liability $100.00
Advances received $50.00
Accrual for Income Taxes $50.00
Interest Free Liabilities $200.00
Income Statement
Sales $1,000.00
Less Variable Cost : Cost of goods sold $350.00
Contribution Margin $650.00
Less Fixed Cost: Factory overhead $120.00
SG&A $260.00
Net operating income (=EBIT) $270.00
Less: Interest expense $25.60
Net income before taxes $244.40
Less: Income taxes $97.76
Net income $146.64
EVA TREE ANALYSIS OF FINANCIAL STATEMENTS
| Deb Sahoo | MBA, Finance, University of Michigan | MS, EE, University of Southern California | B-Tech, EE, IIT |

2. COST OF CAPITAL TREE
Rate of Return of a Market Index
12.00%
Market Risk Premium
5.00%
Company Risk Premium Risk-Free Rate
5.50% 7.00%
Cost of equity Beta Coefficient
13.00% 1.10
Weighted Cost of Equity Risk-Free Rate
7.80% 7.00%
Percentage of Equity in Capital Structure
60.00%
WACC Before-Tax Cost of Debt
9.72% 8.00%
After-Tax Cost of Debt Before-Tax Operating Profit in %
4.80% 100.00%
Weighted Cost of Debt After-Tax Operating Profit in %
1.92% 60.00%
% of Total Capital Supplied by Debt Income Taxe Rate
40.00% 40.00%
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EVA VALUE DRIVER TREE
Sales
$1,000.00
Contribution
$650.00
EBIT Variable Cost of Goods Sold
$270.00 $350.00
NOPAT Overhead (Fixed Cost)
$162.00 $380.00
Profit Margin (1-Rate of Income Tax)
16.2% 0.6
RONA Sales
20.3% $1,000.00 Fixed Assets
Operating Profit Total Net Asset Turnover Assets $600.00
$162.00 1.25 $1,000.00
EVA Net Assets Net Assets
$84.24 $800.00 $800.00 Current Assets
Cost of Capital Interest Free Liabilities $400.00
$77.76 $200.00
WACC
9.7%
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Before interest

3. RONA 20.25 %
Operating Profit - Cost of Capital = EVA = $84.24
WACC 9.72 %
Operating Profit = $162
Cost of Capital= $77.76
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
$0.00 $100.00 $200.00 $300.00 $400.00 $500.00 $600.00 $700.00 $800.00 $900.00
WACC/RONA
Net Assets
EVA-Chart
Operating Profit Cost of Capital