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Home Depot entered fiscal 2017 with a total capitalization of $21,895 million
Home Depot entered fiscal 2017 with a total capitalization of $21,895 million. In 2017, debt investors received interest income of $874 million. Net income to shareholders was $8,645 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:-
Net operating profit after tax (NOPAT) = Net Income + (Interest expense * (1 - Tax rate))
= $8,645 + ($874 * (1 - 21%))
= $8,645 + $690.46
= $9,335.46 million
Economic value added = NOPAT - (Total capitalization * Cost of capital)
= $9,335.46 - ($21,895 * 10%)
= $9,335.46 - $2,189.50
= $7,145.96 million
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