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ACCA Strategic Professional · Advanced Financial Management · Strategic business and financial planning for multinational organisations

Zeta Group has operating profit after tax (NOPAT) of $48 million. Its capital employed is $400 million and its weighted average cost of capital is 9%. Economic value added (EVA) is calculated as NOPAT less a capital charge on capital employed. What is Zeta's EVA?

EVA is $12 million. The capital charge is 9% of $400 million, which equals $36 million, and deducting this from NOPAT of $48 million leaves $12 million of value created above the required return on capital.

  1. A$12 millionCorrect
  2. B$36 million
  3. C$4 million
  4. D$84 million

Explanation

Capital charge = 9% x $400m = $36m. EVA = $48m - $36m = $12m. The $36m option is just the capital charge, and $84m wrongly adds the charge instead of deducting it.

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