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In calculating the NOPAT in the above question, how do I arrive at the $12,371,720 if I start with the group’s profit after tax of $7,538,977.
Thanks for your help!
Hi,
You should start with the operating profit, not PAT, since interest (finance costs) need to be omitted (they are part of WACC) and tax amount in the question does include clearly deferred tax elements (so tax paid <> tax 2,100,000 vs 2,512,993).You add back:
Marketing capitalised 3,819,000 (long-term brand building)You deduct:
Tax paid 2,100,000
Lost tax relief on interest 200,250 (801,000 x 25%)Hope it helps
Hello there..
if u start with PAT, u need to add the tax expense as per the income statement in the end, to get the answer.
I.e PAT= $ 7,538,977
Add back ( tax on interest) {0.75 *801,000}
Add back marketing expenses $3,819,000
Deduct tax paid (given) (2,100,000)
Add back Tax expense from Income statement I.e 2,512,993your adjusted NOPAT is $12,371,720
Hi Allymaudar,
Thanks again for help earlier.
In the June 2014 Question 1, I now understand the calculation of the EVA. However, I am unsure why the examiner uses 1/1.3 and 0.3/1.3 in the WACC calculation. The question says Debt/Equity is 30%.
I am looking forward to your assistance.
Hi,
u know that 30% means 30/100.so,[Debt= 30]/[100 =(equity)]
There total of debt and equity is 30 +100= 130
Simple.
Thank you for clarifying. I still don’t think the question was clear regarding the ratio of debt to equity.
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