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CMA Intermediate · Management Accounting · Divisional Performance Measurement

Narmada Foods Ltd's division earns profit before interest and tax of ₹90 lakh. The tax rate is 30%. Capital employed is ₹400 lakh and the weighted average cost of capital is 14%. What is the division's EVA?

First compute NOPAT by taxing the operating profit: ₹90 lakh less 30% gives ₹63 lakh. The capital charge is 14% of ₹400 lakh, or ₹56 lakh. EVA is therefore ₹63 lakh minus ₹56 lakh, which equals ₹7 lakh positive.

  1. A₹7,00,000Correct
  2. B₹34,00,000
  3. C₹63,00,000
  4. D₹(7,00,000)

Explanation

NOPAT = 90 x (1 - 0.30) = ₹63 lakh. Capital charge = 14% x 400 = ₹56 lakh. EVA = 63 - 56 = ₹7 lakh. The ₹34 lakh option uses pre-tax profit 90 less 56.

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