EVA

CFA Level II
#1

Hi,

When computing EVA = Nopat- $wacc, do we use beginning total invests capital or ending? As far as I know we would use beginning since it makes sense in that the Econ profit was created from that capital. Plus I recalled seeing a capital. Up budgeting vignette in a mick they use beginning

in Schweser volum 1 Q22 they use ending, plus they don’t specifically clarify which year they r asking for.

any one can confirm?

.

#2

I would go with the module and CFA mock . Better from the horse’s mouth. Use the beggining .

#3

I think I have a similar problem as yours w.r.t. calculating ROE and equity charge for residual income. Seems like calculations are not always consistent in different examples.

#4

In practice one actually used average capital but in CFAI readings I am pretty sure they use beginning capital

#5

As a general rule when using formulas with Balance Sheet items I would use average amount of its in FRA and beginning amount if its elsewhere in the curriculum.

#6

I think of it this way. When you are computing returns for a period, surely it makes more sense to use the beginning period as the base and not the end right?

#7

agreed.

#8

you do not use avg E for RI…use begin period E.

#9

What about equity? Beginning or average ?