CA Final · Advanced Financial Management · Business Valuation
Rohini Pharma Ltd has a capital structure of equity ₹600 crore (cost 15%) and 10% debt ₹400 crore on which the tax rate is 25%. Operating profit before interest and tax (EBIT) is ₹150 crore. Invested capital equals ₹1,000 crore. What is EVA?
EVA works out to a negative ₹7.5 crore: NOPAT of ₹112.5 crore less a capital charge of ₹120 crore at a 12% post-tax WACC. The firm destroyed value.
- A₹15 crore
- B₹22.5 croreCorrect
- C₹30 crore
- D₹7.5 crore
Explanation
NOPAT = 150 × 0.75 = 112.5. WACC = 0.6×15% + 0.4×10%×0.75 = 9% + 3% = 12%. Capital charge = 120. EVA = 112.5 − 120 = −7.5, so the option ₹7.5 crore would be a negative value. Recomputing: the correct reading is EVA of −₹7.5 crore, i.e. none matches positively.
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