Home Depot entered fiscal 2017 with a total capitalization of $21,886 million

Finance Nov 09, 2020

Home Depot entered fiscal 2017 with a total capitalization of $21,886 million. In 2017, debt investors received interest income of $871 million. Net income to shareholders was $8,636 million. (Assume a tax rate of 21%.)

Calculate the economic value added assuming its cost of capital is 10%. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Expert Solution

Computation of the economic value added:-

Economic value added = After-tax interest + Net income - (Cost of capital * Total capitalization)

= ($871*(1-21%)) + $8,636 - (10% * $21,886)

= $688.09 + $8,636 - $2,188.60

= $7,135.49 million

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