Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 900.00 Cost of goods sold 760.00 Depreciation 50.00 Earnings before interest and taxes (EBIT) $ 90.00 Interest expense 31.00 Income before tax $ 59.00 Taxes 12.39 Net income $ 46.61 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Current assets $ 388 $ 350 Long-term assets 296 241 Total assets $ 684 $ 591 Liabilities and shareholders’ equity Current liabilities $ 213 $ 176 Long-term debt 127 140 Shareholders’ equity 344 256 Total liabilities and shareholders’ equity $ 684 $ 572 The company’s cost of capital is 8.5%. a. Calculate Watervan’s economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is the company’s return on capital? (Use start-of-year rather than average capital.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. What is its return on equity? (Use start-of-year rather than average equity.) (Enter your answer as a percent rounded to 2 decimal places.) d. Is the company creating value for its shareholders?
Here are simplified financial statements for Watervan Corporation:
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INCOME STATEMENT |
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(Figures in $ millions) |
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Net sales |
$ |
900.00 |
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Cost of goods sold |
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760.00 |
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50.00 |
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Earnings before interest and taxes (EBIT) |
$ |
90.00 |
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Interest expense |
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31.00 |
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Income before tax |
$ |
59.00 |
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Taxes |
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12.39 |
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Net income |
$ |
46.61 |
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BALANCE SHEET |
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(Figures in $ millions) |
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End of Year |
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Start of Year |
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Assets |
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|
|
|
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Current assets |
$ |
388 |
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$ |
350 |
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Long-term assets |
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296 |
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|
241 |
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Total assets |
$ |
684 |
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|
$ |
591 |
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Liabilities and shareholders’ equity |
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|
|
|
|
|
|
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Current liabilities |
$ |
213 |
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|
$ |
176 |
|
|
Long-term debt |
|
127 |
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|
|
140 |
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|
Shareholders’ equity |
|
344 |
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|
|
256 |
|
|
Total liabilities and shareholders’ equity |
$ |
684 |
|
|
$ |
572 |
|
The company’s cost of capital is 8.5%.
a. Calculate Watervan’s economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
b. What is the company’s return on capital? (Use start-of-year rather than average capital.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
c. What is its return on equity? (Use start-of-year rather than average equity.) (Enter your answer as a percent rounded to 2 decimal places.)
d. Is the company creating value for its shareholders?
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