Total variable costs per unit (marginal costs) = 90 + 60 + 40 + 45 + 20 = $255
Selling price per unit = $448m/1.12m = 400
Contribution/unit = 400 – 255 = $145
Total fixed costs = 18 + 16 + 6 + 80 = $120m
Break-even point = Fixed costs/contribution per unit = $120m/145 = 0.8276m units
Current sales = 1.12m
Margin of safety % = 100 x (1.12 – 0.8276)/1.12 = 26.1%
Debt/Equity = 30% so $30m for debt and $100m for equity. Total capital is therefore $130m
WACC uses the post-tax cost of debt, but the data provided is for the pre-tax cost of debt.
WACC = ((15.7 x (100/130)) +(( 6.5 x (1 – 0.25) x (30/130)) = 13.2%
For ROCE, either opening or closing capital can be used
Using opening capital:
ROCE = Profit before interest and tax /long term capital employed
= 2,907/(8,984 + 9,801) = 15.5%
Using closing capital:
= 2,907/(9,961 + 9,739) = 14.8%
EVA™ = NOPAT – Capital employed x WACC
| $m | |
|---|---|---|
Net income after tax |
| |
Add: interest | 291 | |
Less: |
| |
NOPAT | 2,163 |
or
| $m | |
|---|---|---|
Operating profit | 2,907 | |
Less: tax | (663) | |
Less: tax benefit of interest | (81) | |
NOPAT | 2,163 |
EVA = 2,163 – ((0.11 x (8,984 + 9,801)) = 97
Note: EVA™, by definition, must be calculated using opening capital.