EBIT = Rs. 1,00,000 Investment = Rs. 3,00,000 WACC = 15-2% EVA will be Multiple Choices A. Rs. 14.000 B. Rs 14.400 o C. Rs. 14.440 o D. Rs 14 444
Answers
Explanation:
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Economic Value Added (EVA)
Article by
Dheeraj Vaidya, CFA, FRM
What is Economic Value Added?
Economic value added (EVA) is a measure of surplus value created on a given investment. When a person is investing his funds, he does this only because he expects to earn a profit from the investment. Let us say, gold seems to be a good instrument to invest with a high-profit margin.
Total investment (i.e., price at which gold is purchased) = $ 1000
Brokerage paid to the dealer for the purchase of gold = $ 15
In a year, I would like to sell off the gold on account of a liquidity crunch.
The selling price of gold = $ 1200
Brokerage paid to the dealer on sale of gold = $ 10
In the above Economic Value Added example,
Economic Value Added = Selling price – Expenses associated with selling the asset – Purchase price – Expenses associated with buying the asset
Economic Value Added = $ 1200 – $ 10 – $ 1000 – $ 15 = $ 175