Strawberry Ltd. is an established confectionary maker company. Chairman of the Strawberry has recently attended one of the Management Development Programme in premier institution. He is willing to work out the Economic V

CS Professional · Financial, Treasury and Forex Management · PYQS · June 2018
Strawberry Ltd. is an established confectionary maker company. Chairman of the Strawberry has recently attended one of the Management Development Programme in premier institution. He is willing to work out the Economic Value Added (EVA) of the firm. He has provided to you, the following information. You are required to calculate the EVA from the same. 1. Profit after interest and tax ₹150 lakh 2. Interest ₹25 lakh 3. Borrowing interest rate 10% 4. Owners' cost of capital 18% 5. Net worth of the company ₹300 lakh 6. Tax rate applicable 33% 7. Overall cost of capital 15%

Answer & Explanation:

Alternative Solution No. 2 EVA = NOPAT - Charges for capital employed NOPAT = PAT + Interest (1-t) = ₹150 lakh + ₹25 lakh (1-0.33) = ₹166.75 lakh Capital employed = equity capital + debt = ₹300 lakh + (₹25 lakh/10%) = ₹550 lakh Cost of capital employed = 0.15 * ₹550 lakh = ₹82.5 lakh EVA = ₹166.75 lakh - ₹82.5 lakh = ₹84.25 lakh

Topics: Performance Measurement

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic