Schweser says that increasing ivnested capital to take advantage of positive NPV projhects will increase NOPAT and EVA. I get NOPAT, but how do you know EVA will be higher? Couldn’t the $WACC increase be higher than the NOPAT increase?
As long as NPV is positive EVA is positive.
I think on an absolute term EVA will be higher because there is just more money flowing through your profit-making business. If you’re investing $100 dollars at 10% NPV and a WACC of 5% you get $10 - $5 (5)! If you invest $200 at 10% - 5% you get $20 - $10 (10)!
I guess you’re thinking that if they are relying on investing more capital then WACC may increase but it’s likely that the question assumes they raise the capital in line with maintaining the target capital structure as would be the way things are supposed to function under optimal corporate finance theory. That would mitigate any increases in WACC.