Question

Here are simplified financial statements for Watervan Corporation:

INCOME STATEMENT (Figures in $ millions)

Net sales $ 893.00

Cost of goods sold 753.00

Depreciation 43.00

Earnings before interest and taxes (EBIT) $ 97.00

Interest expense 24.00

Income before tax $ 73.00

Taxes 15.33

Net income $ 57.67

BALANCE SHEET (Figures in $ millions)

End of Year Start of Year Assets

Current assets $ 381 $ 336

Long-term assets 282 234

Total assets $ 663 $ 570

Liabilities and shareholders’ equity Current liabilities $ 206 $ 169

Long-term debt 120 133

Shareholders’ equity 337 268

Total liabilities and shareholders’ equity $ 663 $ 570

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.)

a.Economic value added _____ million

b.Return on capital______%

c.Return on equity ______%

d.Is the company creating value for its shareholders?__________

d. Is the company creating value for its shareholders?

Answer 1

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