Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 895.00 Cost of goods sold 755.00 Depreciation 45.00 Earnings before interest and taxes (EBIT) $ 95.00 Interest expense 26.00 Income before tax $ 69.00 Taxes 14.49 Net income $ 54.51 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Current assets $ 383 $ 340 Long-term assets 286 236 Total assets $ 669 $ 576 Liabilities and shareholders’ equity Current liabilities $ 208 $ 171 Long-term debt 122 135 Shareholders’ equity 339 270 Total liabilities and shareholders’ equity $ 669 $ 576 The company’s cost of capital is 8.5%. Required: Calculate Watervan’s economic value added (EVA). Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. What is the company’s return on capital? (Use start-of-year rather than average capital.) Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. What is its return on equity? (Use start-of-year rather than average equity.) Note: Enter your answer as a percent rounded to 2 decimal places. Is the company creating value for its shareholders?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

Problem 19BEA

See similar textbooks

INCOME STATEMENT
(Figures in $ millions)
Net sales	$ 895.00
Cost of goods sold	755.00
Depreciation	45.00
Earnings before interest and taxes (EBIT)	$ 95.00
Interest expense	26.00
Income before tax	$ 69.00
Taxes	14.49
Net income	$ 54.51

BALANCE SHEET
(Figures in $ millions)
	End of Year	Start of Year
Assets
Current assets	$ 383	$ 340
Long-term assets	286	236
Total assets	$ 669	$ 576
Liabilities and shareholders’ equity
Current liabilities	$ 208	$ 171
Long-term debt	122	135
Shareholders’ equity	339	270
Total liabilities and shareholders’ equity	$ 669	$ 576

Required:

Calculate Watervan’s economic value added (EVA).

Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
What is the company’s return on capital? (Use start-of-year rather than average capital.)

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
What is its return on equity? (Use start-of-year rather than average equity.)

Note: Enter your answer as a percent rounded to 2 decimal places.
Is the company creating value for its shareholders?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions