CA Final · Advanced Financial Management · Business Valuation
Sundaram Auto Ltd reports NOPAT of ₹48 crore. Its invested capital is ₹300 crore and its weighted average cost of capital is 12%. What is the Economic Value Added (EVA) for the year?
EVA is ₹12 crore. It equals NOPAT of ₹48 crore minus the capital charge of ₹36 crore, which is 12% of invested capital of ₹300 crore. The positive figure shows the firm earned more than the cost of the capital employed.
- A₹12 croreCorrect
- B₹36 crore
- C₹48 crore
- D₹84 crore
Explanation
Capital charge = 12% × 300 = ₹36 crore. EVA = NOPAT − capital charge = 48 − 36 = ₹12 crore. Option ₹36 crore is just the capital charge, and ₹84 crore wrongly adds the charge to NOPAT.
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