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In RI and EVA we adjust for the finance charges ie. the minimum required for the providers of finance(debt holders) with WACC or Cost of capital to calculate the remaining for the shareholders
the WACC includes the required return of debt holders and shareholders so aren’t we considering it twice the required return of shareholders?
The WACC is the % return needed by suppliers of capital (equity providers and debt providers).
Applying WACC to the capital employed calculates the absolute reward needed by suppliers of capital. When this is deducted from NOPAT it lets you see if the company earns enough to cover the rewards needed. If EVA is negative, the company is wasting investors’ time and money. If EVA is positive then the company is richer even after paying for its use of capital.
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