With the help of the following information of PND Ltd., compute the Economic Value Added: Equity Share Capital 100 Lakhs Reserves and Surplus 200…
CA Final · Advanced Financial Management · PYQS · May 2025
With the help of the following information of PND Ltd., compute the Economic Value Added: Equity Share Capital 100 Lakhs Reserves and Surplus 200 Lakhs 8% Debentures 300 Lakhs Cost of Equity = 15% Financial Leverage = 1.5 times Income Tax Rate = 25%
Suggested Answer and Working Notes:
Financial Leverage = PBIT/PBT 1.5 = PBIT / (PBIT – Interest) 1.5 = PBIT / (PBIT – 24) 1.5 (PBIT – 24) = PBIT 1.5 PBIT – 36 = PBIT 1.5 PBIT - PBIT = 36 0.5 PBIT = 36 or = 72 lakhs NOPAT = PBIT – Tax = 72 lakhs (1 – 0.25) = 54 lakhs. Weighted Average Cost of Capital (WACC) = 15% (300 / 600) + (1 – 0.25) (8%) (300 / 600) = 10.50% EVA = NOPAT – (WACC Total Capital) EVA = 54 lakhs - 0.105600 lakhs EVA = -9 lakhs
Topics: Business Valuation
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