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CMA Final · Strategic Performance Management and Business Valuation · Economic Efficiency of the Firm - Performance Analysis

Vikram Engineering has a net operating profit after tax (NOPAT) of Rs 90 lakh, invested capital of Rs 600 lakh, and a weighted average cost of capital of 11%. Its economic value added is:

EVA is Rs 24 lakh. The capital charge is 11 percent of Rs 600 lakh, which equals Rs 66 lakh, and subtracting this from NOPAT of Rs 90 lakh leaves a surplus of Rs 24 lakh created for shareholders.

  1. ARs 24 lakhCorrect
  2. BRs 66 lakh
  3. CRs 4 lakh
  4. DRs 90 lakh

Explanation

Capital charge = 11% x 600 = Rs 66 lakh. EVA = 90 - 66 = Rs 24 lakh. Rs 66 lakh is only the capital charge, not the surplus after it.

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