- CFA Exams
- CFA Level I Exam
- Study Session 11. Equity Valuation (3)
- Reading 30. Residual Income Valuation
- Subject 2. Commercial implementations of the residual income concept

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**CFA Practice Question**

Given the following information:

- NOPAT = $100.
- Beginning book value of debt = $200.
- Beginning book value of equity = $400.
- Pre-tax cost of debt = 6%.
- Cost of equity = 12%.
- Tax rate = 40%.

The EVA should be ______.

A. $52

B. $44.8

C. $63.2

**Explanation:**WACC = 0.06 x (1 - 0.4) x 200/600 + 0.12 x 400/600 = 9.2%.

EVA = NOPAT - WACC x beginning book value of assets = 100 - 0.092 x 600 = $44.8.

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**User Contributed Comments**
2

User |
Comment |
---|---|

bbadger |
400(.12) = 48m, 200(.06(1 -.4)) = 7.2m, 48 + 7.2 = 55.2, 100 - 55.2 = 44.8 |

birdperson |
i did it the same was as @bbadger |