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Dear teacher and all,
From answer of Q1 on Dec 2007, it showed that EVA was calculated based on EBIT – cost of capital employed. No adjustment for them was made, ie depreciation, provision.
However, as i understand, EVA = NOPAT – Cost of CE.
it must reflect residual adjusted net profit available for funder of business. I also must adjusted for both NOPAT and CE to reflect economic value, not accounting figures.What is the point here? Was am wrong?
You are correct in that ideally we should adjust to reflect economic value.
However here we have no choice because of a lack of the necessary information – for example, we have no choice but to assume that the accounting depreciation is equal to the economic depreciation (which is actually a standard assumption for the exam because you cannot be expected to calculate economic depreciation).Thank you Mr. Moffat,
I’ve just recapped EVA for adjustment for both economic items. Actually in this case, assumption is the one.
Thank you sir.
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