The income statement and balance sheet of Alpha Company Ltd. is given below-
                                                   INCOME STATEMENT
| PARTICULARS | Rs (in Lakhs) | Rs (in lakhs) |
| Sales | 5,000 | Â |
| Interst on investment | 100 | Â |
| Profit on sale on old assets | 50 | Â |
| Total income | Â | 5,150 |
| Less | Â | Â |
| Manufacturing cost | 1,800 | Â |
| Administration cost | 600 | Â |
| Selling and distribution cost | 500 | Â |
| Depreciation | 300 | Â |
| Loss on sale of an old building | 50 | 3,250 |
| EBIT | Â | 1,900 |
| Less– interest | Â | 200 |
| EBT | Â | 1,700 |
| Less– tax (30%) | Â | 510 |
| PAT | Â | 1,190 |
| EPS [1,190 lakhs/ 50 lakhs] | Â | Rs. 23.8 |
| P/E ratio | Â | 2.5 |
Â
                                                   BALANCE SHEET
| Â Â Â Â Â LIABILITIES | Rs. | ASSETS | Rs. |
| Equity capital (Rs 10 shares) | 500 | Buildings | 800 |
| Retained profits | 400 | machinery | 700 |
| Term loan | 600 | Stock | 100 |
| Payable | 150 | Debtors | 120 |
| Provisions | 130 | Bank | 60 |
| TOTAL | 1,780 | TOTAL | 1,780 |
The cost of equity and cost of debt is 14% and 8% respectively. The company pays 30% corporate tax.
From the information given you are require to calculate the EVA. Also, calculate MVA on the basis of market value of equity capital.
Solution–
EVA= NOPAT-(WACC- CE)
       = 1260-(10.64 % x 1500)
       = 1100.4
Calculation of NOPAT
Sales                             5000
(-) Operating expenses  2900
(-) Depreciation               300
EBITÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1800
(-) tax @ 30%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 540
NOPATÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1260
Â
Calculation of WACC
| Sources | Amt. | Proportion | Cost | WACC | ||
|
500 | 33.33 | 14% | 4.67% | ||
|
400 | 26.67 | 14% | 3.73% | ||
|
600 | 40.00 | 5.6% | 2.24% | ||
| Â | 1500 | 100 | Â | 10.64% | ||
Â
kd= I(1-tax)
   = 8 (1-0.3)
   = 5.6
MVA= Market capitalization – Book value of net worth
        = 2975-900
        =2075
market capitalization= MPS x no. of shares
                                = 59.2 x 50
                                = 2975
P/E ratio= MPS/ EPS
2.5Â Â Â Â Â Â Â Â = MPS/ 23.8
MPSÂ Â Â Â Â = 2.5 x 23.8
MPSÂ Â Â Â = 59.2
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