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DIR SIR
I have Q in JUNE 14, for Q1. The part (iii), when calculate the EVA. my workings are:
operating profit: 10852970
less: (10852970*25%) (2713243)
Add: marketing 3819000
Less: tax paid in cash (2100000)
TOTAL 9858727
I REMEMBERED this method of calculating EVA was in the lecture, and I calculate it based on our method.
however, in the examiner answer, the examiner use the finance cost * interest rate to be deducted amount, in our lecture we should use the PBIT *tax rate. what’s wrong with my answer?
thanks sirTo get NOPAT, you can usually either start with operating profit and work forward or you can start with profit after tax and work backwards.
However, you can get differences (as here) if the tax paid is not equal to the tax charge.
Don’t worry about it: use whichever method seems easier for you.
The result is different, so if in the exam, I could get marks if use either of method even results are different am I right? Thanks so much!
Sir is operating lease equivalent to rental payments for property? If yes then why in this question 1 rental costs is not added back to nopat?
The reason that operating leases are added back is because there is a potential inconsistency with finance leases. Firms could use the same machinery under either lease and so could opt for operating leases to reduce their capital employed.
I accept that a company could rent an office instead of buying it and this would also reduce its capital employed, however, neither Stern Stewart (inventors of EVA) or other commentators take this up.
Does this mean that the operating lease in eva is only meant for machinery and not property?
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