book 7, 1 pm Q97

CFA Level II
#1

Flex Co: EBIT = 239 Tax = 30% note: Flex LIFO reserve = 35 mn, an increase of 10 mn over previous year To calculate EVA; we need NOPAT - $WACC For NOPAT calculation, why do we need to make an after-tax LIFO reserve adjustment?

#2

NOPAT=EBIT(1-t), using FIFO underestimated the COGS, and overestimate the Earning. So we need to adjust LIFO reserve to reflect the true value of EBIT.

#3

thanks a lot. got the point.

#4

NOPAT = 160.3?

#5

NOPAT = (239*0.7) + (10 * 0.7) = 173.8