An asset with a first cost of $300,000 is depreciated by the MACRS method using a 5-year recovery period. Determine the economic value added in year 2, if the net operating profit after taxes is $70,000 and the company uses an after-tax MARR of 15% per year. The MACRS rates for years 1 and 2 are 20% and 32%, respectively.
What will be an ideal response?
BV1 = 300,000 – 300,000(0.20) = $240,000
EVA = NOPAT – MARR(BV1)
= 70,000 – (0.15)(240,000)
= $34,000
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