CMA Intermediate · Operations Management and Strategic Management · Formulation and Implementation of Strategy
Rahul Textiles Ltd had capital employed of ₹50 crore at the start and end of the year. Its operating profit after tax was ₹9 crore, and the weighted average cost of capital is 12%. Using economic value added (EVA) to evaluate strategy performance, what is EVA for the year?
EVA is ₹3 crore. The capital charge is 12% of ₹50 crore, which equals ₹6 crore. Subtracting this from the after-tax operating profit of ₹9 crore leaves ₹3 crore of value created for shareholders above the required return on capital.
- A₹3 croreCorrect
- B₹6 crore
- C₹(3) crore
- D₹9 crore
Explanation
Capital charge = 12% × 50 = ₹6 crore. EVA = NOPAT − capital charge = 9 − 6 = ₹3 crore. Option ₹6 crore is only the capital charge, and ₹(3) crore wrongly reverses the subtraction.
Did you get it right without looking?
One question tells you little. A timed set on Formulation and Implementation of Strategy shows your real accuracy, how long you take and where you lose marks.
More Formulation and Implementation of Strategy questions
- A Mumbai bakery chain that makes bread buys a large flour mill to control its own supply of flour. This is an example of:
- A Pune auto-components maker, which earlier supplied only to two-wheeler makers, starts supplying similar components to tractor manufacturer…
- A mid-sized Indian packaged-snacks company decides that its single snack division will compete by offering the lowest price in the mass mark…
- A company uses the Balanced Scorecard to evaluate its strategy. Measuring the percentage of employees trained in new digital tools and emplo…
- Tata Motors' board decides to enter the electric vehicle business and allocates group resources across its passenger, commercial and EV port…
- A Nagpur steel producer, whose profits are falling, cuts costs, closes unviable plants and sheds surplus staff, intending to restore profita…