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Need to understand what discount factor was used for part b NPV and how the EVA was worked out. Please
My advice is not to even try to understand the main approach for NPV – it’s really weird and I’m sure will not happen again. Instead, see the note in the ACCA model answer just beore Q2. That sets out a much more normal approach.
Actual 2012 before tax and interest = $262,322
After tax, before interest = $262,322 x (1 – 0.3) = 183,626No other adjustments are needed (we have to assume that book depreciation = economic depreciation.)
WACC = 12.5%, given
Capital employed = 600,000EVA = 183,626 – 12.5% x 600,000 = 108,626
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