CMA Intermediate · Management Accounting · Divisional Performance Measurement
A division of Kaveri Industries Ltd has Net Operating Profit After Tax (NOPAT) of ₹48,00,000. Its capital employed is ₹300 lakh and the cost of capital is 12%. What is the Economic Value Added (EVA) of the division?
EVA is NOPAT less a capital charge. The capital charge is 12% of ₹3 crore, which is ₹36 lakh. Deducting this from NOPAT of ₹48 lakh leaves an EVA of ₹12 lakh, indicating the division creates value above its cost of capital.
- A₹12,00,000Correct
- B₹36,00,000
- C₹84,00,000
- D₹48,00,000
Explanation
Capital charge = 12% x ₹3,00,00,000 = ₹36,00,000. EVA = NOPAT - capital charge = 48,00,000 - 36,00,000 = ₹12,00,000. Choosing ₹84,00,000 adds the charge instead of deducting it.
Did you get it right without looking?
One question tells you little. A timed set on Divisional Performance Measurement shows your real accuracy, how long you take and where you lose marks.
More Divisional Performance Measurement questions
- Under the Balanced Scorecard, which of the following is the main reason for including non-financial measures such as customer satisfaction a…
- Division B of Kaveri Ltd earns operating profit of ₹30,00,000 on capital employed of ₹1,50,00,000. The company's required rate of return is …
- Godavari Pharma's Division S has capital employed of ₹50,00,000 and a cost of capital of 14%. To have a residual income of ₹2,00,000, what o…
- Tara Industries' division currently earns ROI of 25% on capital employed of ₹40,00,000. The company's cost of capital is 15%. A new project …
- Ramesh Pharma's Division P has operating profit of ₹36 lakh and capital employed of ₹200 lakh. Cost of capital is 12%. Division P is also ev…
- Narmada Foods Ltd's division earns profit before interest and tax of ₹90 lakh. The tax rate is 30%. Capital employed is ₹400 lakh and the we…