CA Final · Advanced Financial Management · Business Valuation
Kaveri Textiles Ltd has 20 crore equity shares trading at ₹45 each. Its debt is ₹200 crore (market value equals book value). Capital invested, as adjusted for EVA purposes, is ₹850 crore, which includes the debt. What is the Market Value Added (MVA) of the firm?
MVA is ₹250 crore. Market value of equity is ₹900 crore and debt is ₹200 crore, giving a firm market value of ₹1,100 crore. Subtracting capital invested of ₹850 crore leaves the wealth created for capital providers.
- A₹50 croreCorrect
- B₹250 crore
- C₹900 crore
- D₹1,100 crore
Explanation
Market value of equity = 20 crore × 45 = ₹900 crore. Market value of firm = 900 + 200 = ₹1,100 crore. MVA = 1,100 − 850 = ₹250 crore. Wait, the correct figure is ₹250 crore; ₹50 crore would result from deducting capital of ₹1,050 crore, an error that arises by mishandling debt.
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