Question

Quantitative Problem: Rosnan Industries' 2013 and 2012 balance sheets and income statements are shown below.

Balance Sheets:
	2013	2012
Cash and equivalents	$100	$85
Accounts receivable	275	200
Inventories	375	250
Total current assets	$750	$635
Net plant and equipment	2,000	1,490
Total assets	$2,750	$2,125
Accounts payable	$150	$85
Accruals	75	50
Notes payable	150	75
Total current liabilities	$375	$210
Long-term debt	450	290
Common stock	1,225	1,225
Retained earnings	700	400
Total liabilities and equity	$2,750	$2,125

Income Statements:
	2013	2012
Sales	$2,000	$1,500
Operating costs excluding depreciation	1,250	1,000
EBITDA	$750	$500
Depreciation and amortization	100	75
EBIT	$650	$425
Interest	62	45
EBT	$588	$380
Taxes (40%)	235	152
Net income	$353	$228
Dividends paid	$53	$48
Addition to retained earnings	$300	$180
Shares outstanding	170	170
Price	$ 27.78	$ 25.28
WACC	9.00 %

Using the financial statements above, what is Rosnan's 2013 market value added (MVA)? Round your answer to the nearest dollar. Do not round intermediate calculations.

=???

Using the financial statements given earlier, what is Rosnan's 2013 economic value added (EVA)? Round your answer to the nearest cent. Do not round intermediate calculations.

=???

Answer 1

I) 2013 : Market value added (MVA) = Market value of stock - Book value of equity & retained earnings

Here, i) Market value of stock = Shares outstanding * Market price of stock

Market value of stock = 170 shares * $27.78 per share

Market value of stock = $4,722.60

ii) Book value of stock = $1,225

Book value of retained earnings = $700

Now,

Market value added (MVA) = $4,722.60 - ($1,225 + $700)

Market value added (MVA) = $2,797.60

II) 2013 : Economic value added (EVA) = Net operating profit after tax - (Capital invested * WACC)

Here,

i) Net operating profit after tax (NOPAT) = Net income + Interest * (1 - Tax rate)

Tax rate = 40% or 0.40

NOPAT = $353 + $62 * (1 - 0.40)

NOPAT = $353 + $37.20

NOPAT (Net operating profit after tax) = $390.20

ii) Capital invested = Long term debt + Common stock + Retained earnings

Capital invested = $450 + $1,225 + $700

Capital invested = $2,375

iii) WACC = 9% or 0.09

Now, use the formula of EVA,

Economic value added (EVA) = $390.20 - ($2,375 * 0.09)

Economic value added (EVA) = $390.20 - $213.75

Economic value added (EVA) = $176.45