Economic Value Addition & Market Value Addition
Q.1) Following is the condensed income statement of a firm for the current year:
Particulars Rs. In lakh
Sales Revenue 500
Less: Operating Cost 300
Less: Interest Cost 12
Earnings before taxes 188
Less: Taxes @ 40% 75.2
Earnings after taxes 112.8
The firms existing capital consist of Rs 150 lakh equity funds, having 15% cost and Rs. 100 lakhs 12%
debt. Determine the EVA during the year.
Q.2) Following is the condensed income statement of a firm for the current year:
Particulars Rs. In lakh
Sales Revenue 330
Less: Operating Cost 300
Less: Interest Cost 12
Earnings before taxes 18
Less: Taxes @ 40% 7.2
Earnings after taxes 10.8
The firms existing capital consist of Rs 150 lakh equity funds, having 15% cost and Rs. 100 lakhs 12%
debt. Determine the economic value added during the year.
Q.3) From the following income statement of a corporate for the current year, determine EVA:(Rs. In crore)
Particulars Rs. Rs.
Sales Revenue 100
Less: Cost of Goods sold 40
Less: Administrative Expenses 4
Less: Selling Expenses 16
Less: Interest 10 70
Earnings before taxes 30
Less: Taxes 12
Earnings after taxes 18
The firms WACC of total capital employed (consisting of equity and debt of Rs. 150 crore) is 12%.
Q.4) The Income Statement and Balance Sheet of Five Star Ltd. Is given below:
Particulars Rs. Lakhs Rs. Lakhs
Sales 500
Interest on Investments 10
Profit on sale of old asset 5
Total Income 515
Less:
Manufacturing cost 180
Administration cost 60
Selling and distribution cost 50
Depreciation 30
Loss on sale of an old Machine 5 325
EBIT 190
Less: Interest 20
EBT 170
Less: Tax @ 30% 51
PAT 119
EPS 23.8
P/E ratio 2
Balance Sheet
Liabilities Rs. Lakhs Assets Rs. Lakhs
Equity Capital (Rs. 10 per share) 50 Building 80
Retained Earnings 40 Machinery 70
Long term loan 60 Stock 10
Creditors 15 Debtors 12
Provisions 13 Bank 6
Total 178 Total 178
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The cost of equity and cost of debt is 10% and 12% respectively. The company pays 30% corporate tax.
From the information given you are required to calculate the EVA & MVA
Q.5) The following data pertain to three divisions of X. The company’s required rate of return on invested
capital is 8%.
Particulars Division A Division B Division C
Sales Value (Rs.) ? 1 crore ?
Income (Rs) 4 lacs 20 Lacs ?
Average Investment (Rs.) ? 25 lacs ?
Sales Margin (%) 20% ? 25%
Capital turnover (times) 1 ? ?
ROI (%) ? ? 20%
Residual Income or EVA (Rs.) ? ? 1,20,000
Q.6) The most recent accounts of a firm engaged in manufacturing business are as below: (Rs. In million)
Particulars Rs.
Sales Revenue 93.5
EBIT 18
Less: Interest on loans 1.8
Earnings before taxes 16.2
Less: Corporate taxes @ 35% 5.67
Earnings after taxes 10.53
Balance sheet at 31st March, current year
Liabilities Rs Assets Rs
Equity Share Capital (Rs. 100 each) 10 Building 20
P & L Account 12.5 Plant and Machinery 29.5
Capital Reserve 20 Current Assets:
Loan 18 Stock 10
Creditors and other liabilities 18 Debtors 15
Bank and cash balance 4
78.5 78.5
It is a prevailing practice for companies in the same industry to pay at least a dividend of 15% p.a. to its
ordinary shareholders. Determine the economic value added during the current year.
Q.7) From the following information, compute EVA of TCS Ltd. (Assume 35% tax rate)
Equity Share Capital = ₹ 1,000 Lakhs; 12% Debenture = ₹ 500 Lakhs
Cost of Equity = 20% ; Financial Leverage= 1.5 times
Q.8) ABC Ltd has the following capital structure and corresponding after tax cost of capital:
Component of Capital Amount (Rs) Cost (k)
Equity Shares 6,00,000 17.5%
Retained Earnings 12,50,000 14.2%
9% Preference Shares 4,00,000 8.4%
10% Debentures 8,00,000 6.5%
Its Net Profit after tax is Rs. 8,06,000 and income tax rate is 35%.
Q.9) Calculate EVA from the following data for the year ended 31st March 2012
Average Debt (Rs. In crores) 50
Average Equity (Rs. In crores) 2766
Cost of Debt (Post tax) 7.72%
Cost of Equity 16.54%
Profit after tax, before exceptional item 15.41
Interest (Rs. In crores) 5
Q.10) ABC Ltd has the following capital structure and corresponding after tax cost of capital:
Component of Capital Amount (Rs) Cost (k)
Equity Shares 6,00,000 ?
Retained Earnings 12,50,000 ?
9% Preference Shares 4,00,000 8.4%
10% Debentures 8,00,000 6.5%
Its Net Profit after tax & dividend on equity and preference shares is Rs. 7,10,000 and income tax rate is 35%.
Equity dividend was paid @ 10%. The Risk free rate of Return is 8%. The market risk Premium is 6%. The beta
factor of ABC is 1.5. Calculate the residual income of ABC ltd.
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