STR Ltd.'s current financial year's income statement reported its net income after tax as 50 Crore. Following is the capital structure of STR Ltd.…

First of all, to calculate Cost of Equity we shall compute the Equity Beta of STR Ltd. as follows: B a = B e [E / (E+D(1-t))] 1.11 = B e [250 / (250+80(1-0.30))] β e = 1.36 then we shall compute the Cost of Equity as per CAPM as follows: k e = R f + β x Market Risk Premium = 8.50% + 1.36 x 9% = 8.50% + 12.24% = 20.74% Cost of Debt (k d ) = 11% (1 – 0.30) = 7.70% WACC (k o ) = k e x (E / (E+D)) + k d x (D / (E+D)) = 20.74x (250 / 330) + 7.70 x (80 / 330) = 15.71 + 1.87 = 17.58% Taxable Income = 50 Crore/(1 - 0.30) = 7142.86 lakhs Operating Income = Taxable Income + Interest = 7142.86 lakhs +880 lakhs = 8022.86 lakhs EVA = EBIT (1-Tax Rate) – WACC x Invested Capital = 8022.86 lakhs (1 – 0.30) – 17.58% x 330 Crore = 5616.00 lakhs - 5801.40 lakhs = -185.40 lakhs