[Stgeorge]

I am using Becker and also have the Ninja Book. I found that Becker states the EVA is the excess of income after taxes, but when looking at a Ninja example it seems that EVA per Ninja does not include after tax consideration.

Becker states EVA = NOPAT – Required return

Required Return = Investment * Cost of Capital(WACC)

This is an example from Ninja

Zig Corp. Provides the Following Information

Pretax operating profit = $300,000,000

Tax Rate: 40%

Capital Used to Generate Profit (50% debt, 50% equity) = $1,200,000,000

Cost of Equity: 15%

Cost of Debt : 5%

What is the EVA Amount?

a) $0

b) $60,000,000

c) $120,000,000

d) $180,000,000

Ninja says the answer is D and they do not take into consideration of the tax rate. I am very confused since becker and ninja are showing conflicting information. Could someone please help me out since becker emphasizes in their book that EVA should be calculated after tax.

FAR 81
AUD 65, 84 (Used Ninja MCQ which I say contributed to my huge increase in score I love you Jeff)
REG 87 (CPA excel Wiley Self Study Book, Ninja 10 point combo)
BEC 86! I Must Pass or I lose my FAR Credit, Pray for me(Becker, Wiley, WTB, Ninja MCQ, Ninja Notes)

DONE!!!!!!

Using : Wiley CPA Exam Review Textbook, Wiley TB, Ninja Notes, Ninja MCQ

[Biff-1955-Tannen]

What question is this? I'm curious about this as well…
Wiley has the same equation as Becker

AUD - 93
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FAR - 83
REG - 84

Nobody calls me chicken

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Stgeorge]

There is conflicting interpretation in the Ninja book as well. The question above is from Chapter 6: Strategic Planning (Page 15)

I also see EVA being explained on Chapter 3: Financial Management on page 116 which is similar to becker.

Could someone explain the two different calculations?

FAR 81
AUD 65, 84 (Used Ninja MCQ which I say contributed to my huge increase in score I love you Jeff)
REG 87 (CPA excel Wiley Self Study Book, Ninja 10 point combo)
BEC 86! I Must Pass or I lose my FAR Credit, Pray for me(Becker, Wiley, WTB, Ninja MCQ, Ninja Notes)

DONE!!!!!!

Using : Wiley CPA Exam Review Textbook, Wiley TB, Ninja Notes, Ninja MCQ

[tuanxn]

Could you list the entire problem from Ninja?

[monikernc]

Please include the question number in ninja if you have it. Thanks.

AUD - 93
BEC - 82
FAR - 76
REG - 88

How have you been?
Ninja book and MCQs and the forum, all first try! 2016
Licensed State of Montana April Fool’s Day 2020
State of Colorado June 2020 - AICPA Ethics 93
Experience was the worst part of the journey for me. You?
If you want things to change you have to do something different.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[monikernc]

We are given two different formulas – one in fin mgmt as EVA = NOPAT – (cost of capital x total assets)
And the second in strategic plan as EVA = (return on capital-cost of capital) x (capital investment in a project)

In the question cited above we are not given total assets so we use the second formula.

And guess what? There is an entire website dedicated to EVA, eva.com, that explains the two formulas are functional equivalents. I just haven't wrapped my head around that yet. But here it is: https://www.eva.com

AUD - 93
BEC - 82
FAR - 76
REG - 88

How have you been?
Ninja book and MCQs and the forum, all first try! 2016
Licensed State of Montana April Fool’s Day 2020
State of Colorado June 2020 - AICPA Ethics 93
Experience was the worst part of the journey for me. You?
If you want things to change you have to do something different.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[monikernc]

I just wrapped my head around those two equations being equivalent and it exploded.

AUD - 93
BEC - 82
FAR - 76
REG - 88

How have you been?
Ninja book and MCQs and the forum, all first try! 2016
Licensed State of Montana April Fool’s Day 2020
State of Colorado June 2020 - AICPA Ethics 93
Experience was the worst part of the journey for me. You?
If you want things to change you have to do something different.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Stgeorge]

wow thank you @monikernc that helped, I need to pass BEC first time to not lose my FAR credit. I might just go over Becker BEC and also read the ninja book for good measure, already going through all becker MCQ, going to go through WTB, and hit the review on Ninja MCQ. Aiming for a 100% lol….

FAR 81
AUD 65, 84 (Used Ninja MCQ which I say contributed to my huge increase in score I love you Jeff)
REG 87 (CPA excel Wiley Self Study Book, Ninja 10 point combo)
BEC 86! I Must Pass or I lose my FAR Credit, Pray for me(Becker, Wiley, WTB, Ninja MCQ, Ninja Notes)

DONE!!!!!!

Using : Wiley CPA Exam Review Textbook, Wiley TB, Ninja Notes, Ninja MCQ

[nyclife]

Not sure why everyone is confused. The NINJA answer should have been B. Becker's formula is correct. NOPAT – Cost of Capital. Cost of Capital factors in weighted debt and equity at their respective rates.

Moniker – The total assets are given in the question. It is called capital used. I think you are overthinking this. Your second formula is similar to the first one you cited. Here is an example for formula 2 – Return on capital=12%. Cost of capital=8%. Capital investment (or you can call it total capital if this reflected the entire company)=$1M. Calculation is (12-8%)*(1M)=40K. So 40K is your EVA.

[monikernc]

i am sticking with what i learned last night.

AUD - 93
BEC - 82
FAR - 76
REG - 88

How have you been?
Ninja book and MCQs and the forum, all first try! 2016
Licensed State of Montana April Fool’s Day 2020
State of Colorado June 2020 - AICPA Ethics 93
Experience was the worst part of the journey for me. You?
If you want things to change you have to do something different.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Biff-1955-Tannen]

lol alright, just to clarify to everybody that read this post and ended up confused by how to go about EVA problems. I literally just did this question #980, and the answer is B… So how we all thought that we were supposed to go about this problem, is exactly how we go about the problem. After tax income is used.

AUD - 93
BEC - 83
FAR - 83
REG - 84

Nobody calls me chicken

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[tuanxn]

Hey Biff, now that you mentioned that, I remembered that the answer was B too. I don't remember any typos from Ninja for BEC.

[Author]

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