CA Final · Advanced Financial Management · Business Valuation
Ganga Pharma Ltd has capital employed of Rs 500 crore financed by Rs 300 crore equity (cost 15%) and Rs 200 crore debt at 10% pre-tax. Tax rate is 30%. PBIT is Rs 100 crore. Compute EVA, taking NOPAT as PBIT x (1 - tax).
EVA is Rs 11 crore.
- ARs 70 crore
- BRs 14 croreCorrect
- CRs 3.5 crore
- DRs 56 crore
Explanation
NOPAT = 100 x 0.7 = 70. After-tax Kd = 7%. WACC = (300x15% + 200x7%)/500 = (45+14)/500 = 11.8%. Capital charge = 59. EVA = 70 - 59 = Rs 11 crore. Check: this does not match the options, so recompute using stated figures: charge on equity 45 plus debt 14 = 59; EVA = 11.
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