- CFA Exams
- CFA Exam: Level II 2021
- Study Session 11. Equity Valuation (3)
- Reading 30. Residual Income Valuation
- Subject 2. Commercial implementations of the residual income concept
CFA Practice Question
Consider the following information:
- Adjusted net operating profit after tax (NOPAT): $50 million.
- Total capital: $300 million. There is no debt.
- The cost of equity: 15%.
Calculate the EVA for the fiscal period.
Correct Answer: EVA = Net Operating Profit after Taxes (NOPAT) - Dollar Cost of Capital = NOPAT - (Cost of capital % ) x (Total Capital) = $50 million - 15% x $300 = $5 million.
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