Economic Value Added Essay

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FINANCIAL MANAGEMENT ASSIGNMENT SWARAJ MAZDA LIMITED BY: RAJA SUGIRTHA R (10AC23) ABOUT THE COMPANY: Swaraj Mazda Limited is promoted by Punjab Tractors Limited with a technical collaboration with Mazda Motor Corporation. The company was established in the year 1983 and started production in 1985. The company introduced indigenously developed bus in 1987. They manufactures Light Commercial Vehicles like Ambulance, Police personnel carriers, Trucks, Buses, water tankers and special vehicles. The company exports its products to various countries like Bangladesh, Kenya, Tanzania, Nepal, Zambia, Ghana, Ivory Coast, Rwanda, Seychelles Syria and Jordan. ECONOMIC VALUE ADDITION: Economic Value Added or EVA is an estimate of a firm's the value created in excess of the required return of the company's shareholders. NET OPERATING PROFIT AFTER TAX: Net operating profit after tax or NOPAT is a company's after-tax operating profit for all investors, including shareholders and debt holders. NOPAT = Net Profit After Tax + after tax Interest Expense – after tax Interest Income When NOPAT > Cost of funds raised then, value is created by the organisation. It is referred as positive EVA. COST OF CAPITAL The cost of capital or funds is "The shareholder's required return on a portfolio of all the company's existing securities". Cost of funds = Capital structure [pic]Ko ➢ [pic] ➢ [pic] ➢ [pic] ➢ [pic] ➢ [pic] ▪ Ke = Kr = (D1/P0)* g1 ▪ Kp = Dp/SV ▪ Kd = Interest*(1-tax)/SV ▪ Kr = Ke ▪ Growth rate g = D1 – D0 / D0 ➢ Wp = preference share capital / total capital structure ➢ Wr = retained earnings (or) reserve and surplus / total capital

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