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Dear Tutor
Please assist me me with the query below on the lecture solution to Exercise 5.
Why was interest payable of $4.2 million not adjusted to the Capital Employed at start of the year of 2014 like the rest of the items that were adjusted to Net Profit After Tax?
I thought the items that affected NPAT also affected Retained Earnings which in turn affect Capital Employed.
Kind Regards
WHi Cath
I see this question was asked before on 18 January 2018 and you addressed it.
I have copied the response for the benefit of others. It reads as follows:
Hi, Thanks for your question.
The interest costs in EVA calcs are already deducted by the WACC % charge on the cost of capital so we don’t deduct them again.We find EVA by taking profit after tax but before interest. The adjustment amount you see in exercise 5 is adding back the tax effect.
Kind Regards
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