In: Finance
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 |
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?