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Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales...

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%. 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?

Solutions

Expert Solution

All the other parts are answered in the excel sheet, scroll through it.

d. Company is creating shareholder value because it is earning a return on its invested capital and ROE is high


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