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Hi Guys, I have one more question for you.
I have calculated the Eva as follows, it does match with examiner’s answer. I have added back the depreciation but the answer does not include depreciation. Please let me know where I am going wrong.
Eva= NOPAT – ( wacc* capital employed)
Calculation of NOPAT for manufacturing /sales
Profit before tax 301
Tax @ 30%. (90.3)
______
Pat 210.7Add back
Non cash
Items. 4Depreciation 88
______
NOPAT. 302.7
______Capital employed does not have any adjustments.
Wacc calculations
9%+(9%*5.5%)
9.495%
Therefore Eva is 302.7-(1294*9.495%) =180
But the examiners answer is 158. I don’t get it. Why? I would appreciate if you could explain to me
Many thanks
We assume accounting depreciation is economic depreciation in case nothing is mentioned so it will not be added back
How can we assume something without further information. In the question, it did not say economic depreciation or did not say anything about the way depreciation was calculated. Therefore I assumed is an accounting depreciation. I am very confused now. How do we differentiate?
WACC is assume to be nortional interest which is 9%. SO you do not need to recalculate the WACC.
Anyone know whether we need to add accounting depreciation and minus economic depreciation from Capital employed? Pls help.
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