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i refer to above, for EVA, when capitalised marketing, advertising or r & D, should we deduct depreciation. for eg in the above ques no dep has been deducted for marketing.
thanks
You can only deduct depreciation if you know what it is. It can’t be book depreciation. It has to be economic depreciation and unless the question tells you that you won’t be able to make that adjustment.
with regards to the same question how is the WACC calculated?
Debt/equity is 30%
Debt pre tax 6.5%
equity is 15.7%I am unsure how the answer has been calculated.
Thank you
It tells you in the question that 11% is the cost of capital (just at the end of appendix 2)
sorry Gromit I cant see it. The answer works the WACC out to be 13.2%
They have done (1/1.3 x 15.8%) + (0.3/1.3 x 6.5% x (1 – 25%) = 13.2%
I just did 15.8% x 70% and 6.5% x 30% x (1-25%) and I got 12.4%!!
I do not understand this?
Thanks
JemmaSorry – I was looking at the wrong exam!
The problem is interpreting what’s meand by Debt/Equity = 30%.
They mean, for example, $30 million D and $100 E. Then D+E = 130
The WACC is therefore
15.8 x 100/130 + 6.5 x (1 – 25%) x 30/130
Blimey I would not get that I ended up doing 30% to 70% …. but I suppose this will only count for 1 or 2 marks wont it!?
thank u
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