CA Final · Advanced Financial Management · Security Valuation
Godavari Pharma Ltd has NOPAT of ₹90 crore, invested capital of ₹600 crore, a WACC of 12% and profit after tax of ₹70 crore. What is its Economic Value Added (EVA)?
EVA is ₹18 crore. The capital charge is WACC multiplied by invested capital, which is 12% of ₹600 crore, or ₹72 crore. Subtracting this from NOPAT of ₹90 crore leaves ₹18 crore of value created above the required return to all capital providers.
- A₹18 croreCorrect
- B-₹2 crore
- C₹162 crore
- D₹72 crore
Explanation
EVA = NOPAT - (WACC × Invested capital) = 90 - (0.12 × 600) = 90 - 72 = ₹18 crore. Using profit after tax of 70 gives -₹2 crore, which is wrong because it is already net of interest, while the WACC charge covers both debt and equity capital.
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