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Hi,
Can you explain why the examiner used Operating Profit of $386 for Manufacturing&Sales and not PAT when working out EVA.
I would have used PBT 301
tax 30% (90.3)
PAT 210.7
Then add back
non cash expense 4*Depreciation
I am assuming Accounting Depreciation and Economic Depreciation is the same. So I am leaving it out the calculation.
I saw the examiner is giving 0.5 marks for depreciation treatment.
Question – if I leave it out completely will I get the mark or should I tell the examiner the reason I am leaving out the depreciation figure.Thanks
Examiner’s method:
PBT and interest (ie op profit) = 386. Add non-cash expenses of 4 = 390. Less tax at 30% of 386 ie 116, gives NOPAT of 274
Starting with PBT of 301, this is after various HO expenses, maybe including interest and we don’t know if the division has any control over these costs.
If you haven’t looked at it already, you might find my last answer to this useful:
https://opentuition.com/topic/march-2020-q2b/
With regard to depreciation, I don’t think you need to mention it to get the 0.5 marks.
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