Skip to content

CMA Final · Strategic Performance Management and Business Valuation · Performance Measurement, Evaluation and Improvement Tools

Sagar Textiles Ltd reports a division with operating profit of ₹90 lakh and average capital employed of ₹600 lakh. The company's cost of capital is 12%. Using the Economic Value Added approach with operating profit treated as the post-tax figure, what is the divisional EVA?

The divisional EVA is ₹18 lakh. The capital charge is 12% of ₹600 lakh, which is ₹72 lakh. Deducting this charge from the post-tax operating profit of ₹90 lakh leaves ₹18 lakh, showing value created above the required return on capital.

  1. A₹18 lakhCorrect
  2. B₹72 lakh
  3. C₹90 lakh
  4. D₹15 lakh

Explanation

Capital charge = 12% × ₹600 lakh = ₹72 lakh. EVA = ₹90 lakh − ₹72 lakh = ₹18 lakh. The figure ₹72 lakh is wrong because it is only the capital charge and ignores the subtraction from profit. The figure ₹15 lakh results from using 15% of ₹100 lakh incorrectly and is not supported by the data.

Did you get it right without looking?

One question tells you little. A timed set on Performance Measurement, Evaluation and Improvement Tools shows your real accuracy, how long you take and where you lose marks.

Practise Performance Measurement, Evaluation and Improvement ToolsFree diagnostic mock

More Performance Measurement, Evaluation and Improvement Tools questions