Compute EVA of X Ltd. with the help of following information: Profit and Loss Statement ₹ lac Balance Sheet ₹ lac Revenue 1500 PPE 1500 Direct Costs…

CA Final · Advanced Financial Management · RTP · November 2024
Compute EVA of X Ltd. with the help of following information: Profit and Loss Statement ₹ lac Balance Sheet ₹ lac Revenue 1500 PPE 1500 Direct Costs -585 Current Assets 450 Selling, General & Admin. Exp. (SGA) -300 1950 EBIT 615 Equity 1050 Interest -15 Reserves 150 EBT 600 Non-Current Borrowings 150 Tax Expense @30% -180 Current Liabilities & Provisions 600 EAT 420 1950 Assume that Bad Debts provision of 30Lac is included in the SGA, and same amount is reduced from the trade receivables in current assets. Also assume that the pre-tax Cost of Debt is 12% and Equity shareholder's expected return is 10%. Note: Make calculation in ₹ lac and round off up to 2 decimal points.

Suggested Answer and Working Notes:

Working Notes: (a) Computation of NOPAT ₹ Lac EBIT 615.00 Less: Taxes -184.50 Add: Non-Cash Expenses 30.00 NOPAT 460.50 (b) Computation of Invested Capital: ₹ Lac Total Assets 1950 Less: Non Interest bearing liabilities -600 1350 Add: Non Cash adjustment 30 Invested Capital 1380 Note: It is assumed that the current liabilities also include the 180 of tax liability. (c) Computation the WACC WACC = Cost of equity + Cost of debt = (1200/1350*10%) + [150/1350*12% (1 - 0.30)] = 8.89% + 0.933% = 9.82% (d) Capital Charge = Invested Capital * WACC = 1380 lac * 9.82% = 135.52 lac The formula for computing Economic Value Added: EVA = Adjusted NOPAT – Capital Charge. Accordingly, EVA of X Ltd. is = 460.50 lac -135.52 lac = 324.98 lac

Topics: Business Valuation

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