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10 July, 02:11

Assume an organization's cost of capital is 10% and Division X has operating income of $3 million and uses $20 million of capital. The economic value added for Division X is: a. $200,000. b. $300,000. c. $1,000,000. d. $1,700,000.

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  1. 10 July, 03:07
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    c. $1,000,000

    Explanation:

    The computation of the economic value added is shown below:

    Economic value added = Operating income - total invested capital * WACC

    = $3,000,000 - $20,000,000 * 10%

    = $3,000,000 - $2,000,000

    = $1,000,000

    We simply deduct the total invested capital by multiplying the cost of capital from the operating income
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