Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 888.00 Cost of goods sold 748.00 Depreciation 38.00 Earnings before interest and taxes (EBIT) $ 102.00 Interest expense 19.00 Income before tax $ 83.00 Taxes 17.43 Net income $ 65.57
Here are simplified financial statements for Watervan Corporation:
| INCOME STATEMENT | ||
| (Figures in $ millions) | ||
| Net sales | $ |
888.00 |
| Cost of goods sold |
748.00 |
|
|
38.00 |
||
| Earnings before interest and taxes (EBIT) | $ |
102.00 |
| Interest expense |
19.00 |
|
| Income before tax | $ |
83.00 |
| Taxes |
17.43 |
|
| Net income | $ |
65.57 |
| BALANCE SHEET | |||||||
| (Figures in $ millions) | |||||||
| End of Year | Start of Year | ||||||
| Assets | |||||||
| Current assets | $ |
376 |
$ |
326 |
|||
| Long-term assets |
272 |
229 |
|||||
| Total assets | $ |
648 |
$ |
555 |
|||
| Liabilities and shareholders’ equity | |||||||
| Current liabilities | $ |
201 |
$ |
164 |
|||
| Long-term debt |
115 |
128 |
|||||
| Shareholders’ equity |
332 |
263 |
|||||
| Total liabilities and shareholders’ equity | $ |
648 |
$ |
555 |
|||
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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