EVA

NOPAT is before interest and after tax. Ordinary profit after tax as shown in the financial statements is after interest and tax. However, interest hets tax relief. So, if interest is 100 and tax is 25%, the tax relief in the interest means that the net interest cost in profit after tax is only 75. To convert PAT to NOPAT by adding back interest means that an adjustment of only 75 is needed.

Hi Tutor, Does it have to do anything with WACC, like post tax cost of debt, so thats why we take interest net of tax? Thanks.

No. It is purely to do with the definition of NOPAT. To fo from PAT to NOPAT you jave to remove all interest effects, both the amount paid and the tax saving on the interest. See our notes and lectures P87 onwards.