CMA Final · Strategic Performance Management and Business Valuation · Economic Efficiency of the Firm - Performance Analysis
Kaveri Pumps has a net operating profit after tax (NOPAT) of ₹90 lakh. Its invested capital is ₹600 lakh, and the weighted average cost of capital is 12%. What is its Economic Value Added (EVA)?
EVA equals NOPAT minus the capital charge. The capital charge is 12 percent of ₹600 lakh, which is ₹72 lakh. Subtracting this from NOPAT of ₹90 lakh gives a positive EVA of ₹18 lakh, showing value creation above the cost of capital.
- A₹18 lakhCorrect
- B₹72 lakh
- C₹90 lakh
- D₹(18) lakh
Explanation
Capital charge = 12% × 600 = ₹72 lakh. EVA = NOPAT − capital charge = 90 − 72 = ₹18 lakh. Option ₹72 lakh simply reports the capital charge, and ₹90 lakh ignores it.
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