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    Question

    A company has a Net Operating Profit After Tax (NOPAT)

    of ₹60 lakh. Its total capital employed is ₹400 lakh and Weighted Average Cost of Capital (WACC) is 12%. Compute the Economic Value Added (EVA) and interpret its significance.
    A EVA = ₹5 lakh (positive value creation) Correct Answer Incorrect Answer
    B EVA = ₹20 lakh (loss to shareholders) Correct Answer Incorrect Answer
    C EVA = ₹48 lakh (neutral) Correct Answer Incorrect Answer
    D EVA = ₹12 lakh (value creation) Correct Answer Incorrect Answer
    E EVA = ₹30 lakh (capital erosion) Correct Answer Incorrect Answer

    Solution

    EVA = NOPAT - (Capital Employed × WACC) = 60 - (400 × 12%) = 60 - 48 = ₹12 lakh. A positive EVA indicates value creation.

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