Question

Here are simplified financial statements for Watervan Corporation:

INCOME STATEMENT
(Figures in $ millions)
Net sales	$ 900
Cost of goods sold	760
Depreciation	50
Earnings before interest and taxes (EBIT)	$ 90
Interest expense	31
Income before tax	$ 59
Taxes	28
Net income	$ 31

BALANCE SHEET
(Figures in $ millions)
	End of Year				Start of Year
Assets
Current assets	$	388			$	350
Long-term assets		296				241
Total assets	$	684			$	591
Liabilities and shareholders’ equity
Current liabilities	$	213			$	176
Long-term debt		127				140
Shareholders’ equity		344				256
Total liabilities and shareholders’ equity	$	684			$	572

The company’s cost of capital is 8.00%.

a.	Calculate Watervan’s economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Economic value added

$  million

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.)

Return on capital

%

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.)

Return on equity

%

d.	Is the company creating value for its shareholders?
	Yes No

Answer 1

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