EVA PROBLEMS Pizza Hut Ltd. has existing assets in which it has capital invested of Rs.150 crores. The After Tax Operating Income is Rs.20 crores & ompan! has a ost of apital of 12". #stimate the #conomic $al%e Added #$A' of the firm.
Q.1)
Q.1 Solution:- apital #mplo!ed ( 150 crores )O*AT )O*AT ( 20 crores +A ( 12"
#$A
( )O*AT , +A x #' ( 20 , 12" x 150' ( 2 crores.
Q.2)The Income -tatement and alance -heet of Alpha Copan! Ltd. is given /elow "#COME S$A$EME#$ S$A$EME#$ R'. (in Lah') 5000 100 50
Pa%ti&ula%'
-ales Interest on investments *rofit on sale on old assets Total Income L*'': an%fa an%fact% ct%rin rin cost cost Administration cost -ellin and distri/%tion cost e reci reciat atio ion n 7oss on sale of an old %ildin #IT L*'': Interest #T L*'': Tax 60" *AT #*- 1 180 7a;hs< 50 7a;hs *<# ratio
R'. (in Lah')
5150 1300 1300 400 500 600 600 50
6250 1800 200 1900 510 1180 Rs. 26.3 2.5
BALA#CE SHEE$
L"AB"L"$"ES # %it a ital Rs. 10 share Retained rofits Term loan loan *a a/les *rov *rovis isio ions ns $O$AL
R'.
500 ?00 400 400 150 160 160 1+,
ASSE$S %ildin s achiner -toc -toc; ; e/tors an; an; $O$AL
R'. 300 900 100 100 120 40 1+,
The cost of e>%it! and cost of de/t is 1?" and 3" respectivel!. The compan! pa!s 60" corporate tax.
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1
@rom the information given !o% are re>%ired to calc%late the #$A. Also calc%late $A on the /asis of ar;et val%e of e>%it! capital. #$A
Q.2 Solution)
alc%lation of )O*AT -ales B' Operating #xpenses B' epreciation #IT B' Tax C 60" )O*AT
1 2 6
( ( (
)O*AT , +A x #' 1240 , 10.4?" 1500' 1100.?
5000 2800 600 1300 5?0 1240
alc%lation of +A -o%rces Amt. #>%it! ap. 500 Retained ?00 Term 7oan 400 1500
*roportion 66.66 24.49 ?0.00 100.00
ost 1?" 1?" 5.4"
+A ?.49" 6.96" 2.2?" 10.4?"
;d ( I 1 , tax' ( 3 1 , 0.6' ( 5.4 $A ( ar;et apitalisation , oo; val%e of )et +orth ( 2895 , 800 ( 2095 ar;et apitalisation
( ( (
*- x )o. of -hares 58.2 x 50 2895
*#*-
*<# Ratio ( *26.3
2.5
(
∴
*-
(
2.5 x 26.3
*-
(
58.2
∴
Q./) #a0iato% Ltd. is considering a capital proDect for which the foll. information is availa/le.
Investment O%tla! *roDect 7ife -alvage $al%e Ann%al Reven%es Ann%al costs excl%ding depreciation TYBMS SSF
10000 epreciation 5 !ears Tax rate 0 e/t #>%it! ratio 3000 ost of e>%it! ?000 ost of de/t post tax' 2
-traight line ?0" 62 20" 3"
interest & taxes' alc%late #$A of the proDect over its life. ( )O*AT , +A x #' Q./ Solution) #$A 1200 , 12.3" x 10000' - 30 alc%lation of )O*AT -ales B' Operating #xpenses B' epreciation #IT B' Tax C ?0" #T < )O*AT
3000 ?000 2000 2000 300 1200 Total ost B -crap #stimated 7ife
epreciation
( 10000 5 ( (
alc%lation of +A #
=
2000
6 2 6 5
-o%rces e/t #>%it!
( (
x 10000
4000
Amt. 4000 ?000 10000
#
=
5
*roportion 40" ?0" 100"
2
x 10000
?000 ost 3" 20"
+A ?.3 3 12.3
Q.3) @or 7td. ar;et rate of ret%rn Rm' ( 15" Interest Rate of Treas%r! ondsRf'(4.5" eta @actorE'(1.20 . alc%late #>%it! Ris; *remi%m & ost of #>%it! ;e'.
Q.3 Solution) R ƒ Rm
β
( ( (
#>%it! Ris; *remi%m
TYBMS SSF
4.5" 15" 1.20 ( ( (
Rm , R ƒ 15 , 4.5 3.5" 3
ost of #>%it!
Q.4)
( ( (
Rƒ F β Rm , R ƒ' 4.5 F 1.20 3.5' 14.9
The following information is availa/le of 5o&oo Ltd. alc%late #$A. 12" e/t apital Rs. 2000 crores #>%it! apital Rs. 500 crores Reserves & -%rpl%s Rs. 9500 crores apital #mplo!ed Rs. 10000 crores Ris; free rate 8" eta factor 1.05 ar;et rate of ret%rn 18" Operating profit after tax 2100 crores Tax rate 60"
Q.4 Solution) #$A ( )O*AT , +A x #' ( 2100 , 19.28 x 10000' ( 691
alc%lation of +A -o%rces Amt. e/t 2000 #>%it! 500 R&9500 10000
*roportion 20" 5" 95" 100"
ost of e/t ;d'
( ( (
I 1 , tax' 12 1 , 0.6' 3.?"
ost of #>%it! ;e'
( ( ( (
Rƒ F β Rm , R ƒ' 8 F 1.05 18 , 8' 8 F 1.05 x 10 18.5"
Q.6)
ost 3.?" 18.5" 18.5"
+A 1.43 0.83 1?.46 19.28
omp%te #$A of *7 7td. for 6 !ears from the information given , in Rs. 7a;hs' 7*a% Average apital #mplo!ed Operating *rofit /efore Interest orporate Income Taxes Average e/t < Total apital #mplo!ed in"' eta variant Ris; @ree Rate "' #>%it! Ris; *remi%m "' ost of e/t *ost Tax' "'
TYBMS SSF
1 6000.00 350.00 30.00 ?0.00 1.10 12.50 10.00 18.00 4
2 6500.00 1250.00 90.00 65.00 1.20 12.50 10.00 18.00
/ ?000.0 1400.0 120.0 16.0 1.6 12.5 10.0 20.0
Q.6 Solution) *artic%lars #$A ( )O*AT , +A x #' i' alc%lation of )O*AT #IT , Tax )O*AT iii' alc%lation of +A +A for de/t *roportion ost A' +A for #>%it! *roportion ost '
A F ' Total +A vii' # apital #mplo!ed'
Y1
Y2
Y3
( 990 , 6000 x 21.9"' ( Rs.118
( 1130 , 6500 x 22.53"' ( Rs.638.9
( 1?30 , ?00 x 2?.98"' ( Rs.?33.?
850 80
1,250 70
1,600 120
990
1130
1?30
40 19%
35 19%
13 20%
9.4"
4.45
2.4
60 23.5%
65 24.5%
87 25.5%
1?.1" 21.9" 6000
15.86 22.53 6500
22.18 2?.98 ?000
;e G1'
( ( ( (
R ƒ F β Rm , R ƒ' 12.5 F 1.0 10' 12.5 F 11 26.5
;e H'
( ( ( (
Rƒ F β Rm , R ƒ' 12.50 F 1.20 10' 12.50 F 12 2?.5
;e 1<6'
( ( (
Rƒ F β Rm , R ƒ' 12.50 F 1.60 10' 25.5
Q.,) The capital str%ct%re of BHEL Ltd is as %nder • 3000000 #>%it! shares of Rs. 10 each ( Rs. 300 la;hs • 100000 12" *reference -hares of Rs. 250 each ( 250 7a;hs • 100000 10" de/ent%res of Rs. 500 each ( 500 7a;hs • 10" term loan from /an; ( ?50 la;hs
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The ompan!s *rofit and 7oss Acco%nt for the !ear showed a /alance *AT of Rs. 110 7a;hs after appropriating #>%it! ividend at 20". The compan! is in the ?0" tax /rac;et. Treas%r! /onds carr! 4.5" interest and /eta factor for the compan! ma! /e ta;en at 1.5. The long r%n mar;et rate of ret%rn ma! /e ta;en at 14.5". alc%late #$A. Q., Solution) #$A ( ( (
( )O*AT , +A x apital emplo!ed' 659 , 12.85" x 2000' 659 , 258 83
alc%lation of )O*AT #AT After dividend' F' #>%it! ividend C 20" F' *reference ividend C 12" #AT efore ividend' 40" F' Tax C ?0" 200 #T 100" F' Interest e/ent%res 7oan #IT B' Tax C ?0" 263 )O*AT alc%lation of +A -o%rces Amt. #>%it! -hare 300 12" *ref. -hare 250 10" e/ent%re 500 10" Term 7oan ?50 2000
110 140 60 600 500 50 ?5 585 659
ost 21.5 12" 4" 4"
*roportion ?0" 12.5 25.00 22.5 100.00
+A 3.4 1.5 1.5 1.65 12.85
;d
( ( (
I 1 , tax' 10 1 , 0.?' 4
Je
( ( (
Rƒ F β Rm , R ƒ' 4.5 F 1.5 14.5 , 4.5' 21.5
Q.)
@rom the following information comp%te #$A of T- 7td. Ass%me 65" tax rate' • #>%it! -hare apital( Rs.1000 7a;hs • 12" e/ent%re( Rs.500 7a;hs • ost of #>%it! (20" • @inancial 7everage( 1.5 times
Q. Solution) TYBMS SSF
6
#$A
( ( ( (
)O*AT
)O*AT , +A x #' 119 , 15.86" x 1500' 119 , 263.85 121.85' (
#IT ( B Tax )O*AT
130 46 . 119
#.IT #.T
@7
( #IT #IT
1.5
−
Interest
( #IT #T
1.5
−
40
(
∴
1.5 #IT , 40'
(
#IT
1.5 #IT , 80
(
80
1.5 #IT , #IT
(
80
#IT
(
130
∴
∴
∴
alc%lation of +A -o%rces Amt. #>%it! 1000 12" e/ent%re 500 apital #mplo!ed 1500 ;d
( ( (
ost 44.49 66.66 100.00
*roportion 20" 9.3"
+A 16.66 2.4 15.86
I 1 , tax' 12 1 , 0.65' 9.3
E8$RA PRAC$"SE PROBLEMS Q.9)
@rom the following information comp%te #$A of Infos!s 7td. Ass%me 60" tax rate' • #>%it! -hare apital( Rs.1200 7a;hs • 15" e/ent%re( Rs.300 7a;hs • ost of #>%it! (13" • @inancial 7everage( 2 times
Q.1) @ill in the /lan;s
The following date pertains to three divisions of Ree/o; ompan! ltd. the compan!s re>%ired rate of ret%rn on invested capital is 3". TYBMS SSF
7
*artic%lars -ales $al%e Rs.' Income Rs.' Avera e Investment Rs. -ales argin "' apital T%rnover Times' ROI "' Resid%al Income #$A' Rs.'
ivision A
ivision 2 rore ?0 7a;hs 50 7a;hs
3 7a;hs
ivision
20" 2
25" 20" 2?0000
Kint #conomic $al%ed Added #$A' ( )et Income B O Q.11) @ill in the /lan;s The following date pertains to three divisions of Adidas ompan! ltd. the compan!s re>%ired rate of ret%rn on invested capital is 3". *artic%lars -ales $al%e Rs.' Income Rs.' Average Investment Rs.' -ales argin "' apital T%rnover Times' ROI "' Resid%al Income #$A'Rs.'
ivision A 14 7a;hs
ivision ? rore 30 7a;hs 100 7a;hs
ivision
20" 2
25" 20" ?30000
Q.12) o. wishes to ta;e %p the following *roDect Investment 100 *roDect 7ife ? !ears -alvage $al%e )il Ann%al Reven%es 200 ost of #>%it! 15 percent taxes'
#>%it! @inancing 100 epreciation -traight 7ine Tax Rate 50 " Ann%al osts 165 excl%ding depreciation interest &
alc%late #$A & )*$ and give !o%r recommendations for o.
Q.1/) ominos & o. has existing assets in which it has capital invested of Rs.100 crores. The After Tax Operating Income is Rs.15 crores & ompan! has a ost of apital of 10". #stimate the #conomic $al%e Added #$A' of the firm.
Q.13) The Income -tatement and alance -heet of -antro ompan! 7td. is given /elow "n&o* Stat**nt
*artic%lars -ales Interest on investments *rofit on sale on old assets Total Income 7ess an%fact%ring cost TYBMS SSF
Rs.in 7a;hs' 1000 20 10
Rs. in 7a;hs'
1060 640 8
Administration cost -ellin and distri/%tion cost e reciation 7oss on sale of an old *lant and achiner! #IT 7ess Interest #T 7ess Tax 60" *AT #*- 263 7a;hs< 10 7a;hs *<# ratio
120 100 40 10
450 630 ?0 6?0 102 263 Rs. 26.3 6
Balan&* Sh**t
7ia/ilities #>%it! apital Rs. 10 share' Leneral Reserves e/t reditors *rovisions TOTA7
Rs.in la;hs' 100 30 120 60 24 654
Assets %ildings *lant & achiner! -toc; Receiva/le an; Total
Rs.in la;hs' 140 1?0 20 2? 12 654
The cost of e>%it! and cost of de/t is 12" and 15" respectivel!. The compan! pa!s 60" corporate tax. @rom the information given !o% are re>%ired to calc%late the #$A. Also calc%late $A on the /asis of ar;et val%e of e>%it! capital Q.14) %ltiplex 7td. is considering a capital proDect for which the foll. information is availa/le.
Investment o%tla! *roDect life -alvage val%e Ann%al reven%es Ann%al costs excl%ding depreciation interest & taxes' alc%late #$A of the proDect over its life
5000 ? !ears 0 4000 6000
epreciation Tax rate e/t #>%it! ratio ost of e>%it! ost of de/t post tax'
-traight line 60" ?5 13" 8"
Q.16) The following information is availa/le of $odafone 7td. alc%late #$A.
12" e/t apital #>%it! apital Reserves & -%rpl%s apital #mplo!ed Ris; free rate eta factor ar;et rate of ret%rn Operating profit after tax Tax rate
Rs. 1200 la;hs Rs. 600 la;hs Rs. ?500 la;hs Rs.4000 la;hs 3" 2 20" 1240 la;hs 60"
Q.1,) omp%te #$A of IO7 7td. for 6 !ears from the information given , in Rs.7a;hs' TYBMS SSF
9
Gear Average apital #mplo!ed Operating *rofit /efore Interest orporate Income Taxes Average e/t < Total apital #mplo!ed in"' eta $ariant Ris; @ree Rate "' #>%it! Ris; *remi%m "' ost of e/t *ost Tax' "'
1 1300.00 510.00 ?3.00 40.00 1.50 10.50 3.00 10.00
2 2100.00 950.00 ?2.00 ?0.00 1.30 10.50 3.00 10.00
6 2?00.00 840.00 92.00 20.00 2.10 10.50 3.00 10.00
Q.1) The capital str%ct%re of 7 & T 7td is as %nder • 5400000 #>%it! shares of Rs. 10 each ( Rs. 540 la;hs • 195000 12" *reference -hares of Rs. 100 each ( 195 7a;hs • 650000 10" de/ent%res of Rs. 100 each ( 650 7a;hs • 10" term loan from /an; ( 615 la;hs The ompan!s *rofit and 7oss Acco%nt for the !ear showed a /alance *AT of Rs. 99 7a;hs after appropriating #>%it! ividend at 20". The compan! is in the 60" tax /rac;et. Treas%r! /onds carr! 9.5" interest and /eta factor for the compan! ma! /e ta;en at 1.3. The long r%n mar;et rate of ret%rn ma! /e ta;en at 19.5". alc%late #$A.
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10
