CMA Intermediate · Management Accounting · Divisional Performance Measurement
A division of Godavari Motors has a post-tax operating profit of ₹27 lakh on capital employed of ₹200 lakh, financed 60% by equity costing 15% and 40% by debt costing 10% after tax. What is its EVA?
WACC is 0.6 times 15% plus 0.4 times 10%, which is 13%. The capital charge on ₹200 lakh is ₹26 lakh. Subtracting this from the post-tax operating profit of ₹27 lakh gives a positive EVA of ₹1 lakh.
- A₹(2,00,000)Correct
- B₹1,00,000
- C₹(4,00,000)
- D₹7,00,000
Explanation
WACC = 0.6x15% + 0.4x10% = 13%. Capital charge = 13% x 200 = ₹26 lakh. EVA = 27 - 26 = ₹1 lakh. Hence the correct option is ₹1,00,000; the negative figures arise from wrong weights.
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