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CMA Final · Strategic Performance Management and Business Valuation · Economic Efficiency of the Firm - Performance Analysis

Ganga Textiles has operating profit after tax (NOPAT) of ₹90 lakh. Its capital employed is ₹600 lakh, financed 60% by equity costing 15% and 40% by debt costing 10% after tax. Economic Value Added (EVA) is:

EVA is NOPAT minus the capital charge. WACC is 13 percent, so the charge on ₹600 lakh is ₹78 lakh. Subtracting from NOPAT of ₹90 lakh gives EVA of ₹12 lakh.

  1. A₹6 lakhCorrect
  2. B₹30 lakh
  3. C₹36 lakh
  4. D₹(6) lakh

Explanation

WACC = 0.6×15% + 0.4×10% = 13%. Capital charge = 13% × 600 = ₹78 lakh. EVA = 90 − 78 = ₹12 lakh. Recheck: 9% equity part = 54 and 4% debt part = 24 give 78, so EVA = 12 lakh.

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