# economic value added formula pmp

Finally, the weighted average cost of capital, based on the relative values of debt and equity and their respective cost rates, is used to arrive at the cost of capital which is multiplied by the capital employed and deducted from the NOPAT value.

FV = Future Value. They refer to expended costs. It is computed as the product of the “excess return” made on an investment or investments and the capital invested in that investment or investments. Learn how your comment data is processed. No ceiling on the amount managers can take home as incentive pay. EVA corrects this error by explicitly recognizing that when managers employ capital, they must pay for it. Wealth maximization is more important as compared to profit maximization. In other words, it is the expected compound annual rate of return that will be earned on a project or investment.. IRR is used in financial modelingWhat is Financial ModelingFinancial modeling is performed in Excel to forecast a company's financial performance. Total Debt = Notes and Loan Payable + Current Portion of Long-Term Debt + Long Term Debt, Adjusted Equity = Colgate Shareholders Equity + Net Deferred tax + Non Controlling Interest + Accumulated Other comprehensive (income) loss, Colgate’s Invested Capital (2016) = Debt (2016) + Adjusted Equity (2016), We note from above that Colgate’s number of shares = 882.85 million, Current Market Price of Colgate = \$72.48 (as of closing 15th September 2017), Market value of equity of Colgate = 72.48 x 882.85 = \$63,989 million, Let us now find the cost of equity of Colgate using CAPM model, We note from below that the risk-free rate is 2.17%. It is used in the project selection process. The Formula: PV = FV / (1+r) n. PV = Present Value. The opportunity is given up by selecting one project over another. This cost is deducted from the Net Operating Profit After Tax to arrive at the economic profit or the residual wealth created by the organization. It is the amount of money the company has available to invest. The three main components of Economic Value Added (EVA) are: Economic Value Added can be calculated with the help of the following formula: Economic Value Added EVA formula= Net Operating Profit After Tax – (Capital Invested x WACC).