Calculating EVA

Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $195,000 after income taxes. Capital employed equaled $2.4 million. Brewster is 45 percent equity and 55 percent 10-year bonds paying 7 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 13-point premium above the 5 percent rate on long-term Treasury bonds.

Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the new CEO of Brewster Company. He would like to improve EVA for the company. Compute EVA under each of the following independent scenarios that Brewster is considering.

1. No changes are made; calculate EVA using the original data.

2. Sugar will be used to replace another natural ingredient (atomic number 33) in the elderberry wine. This should not affect costs but will begin to affect the market assessment of Brewster Company, bringing the premium above long-term Treasury bills to 11 percent the first year and 8 percent the second year. Calculate revised EVA for both years.

3. Brewster is considering expanding but needs additional capital. The company could borrow money, but it is considering selling more common stock, which would increase equity to 80 percent of total financing. Total capital employed would be $4,000,000. The new after-tax operating income would be $400,000. Using the original data, calculate EVA. Then, recalculate EVA assuming the materials substitution described in Requirement 2. New after-tax income will be $400,000, and in Year 1, the premium will be 11 percent above the long-term Treasury rate. In Year 2, it will be 8 percent above the long-term Treasury rate. (Hint: You will calculate three EVAs for this requirement.)

Calculating EVA

Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $192,000 after income taxes. Capital employed equaled $2 million. Brewster is 45 percent equity and 55 percent 10-year bonds paying 6 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 13-point premium above the 4 percent rate on long-term Treasury bonds.

Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the new CEO of Brewster Company. He would like to improve EVA for the company. Compute EVA under each of the following independent scenarios that Brewster is considering.

Required:

Use a spreadsheet to perform your calculations and round all interim and percentage figures to four decimal places. If the EVA is negative, enter your answer as a negative amount.

1. No changes are made; calculate EVA using the original data.

$

2. Sugar will be used to replace another natural ingredient (atomic number 33) in the elderberry wine. This should not affect costs but will begin to affect the market assessment of Brewster Company, bringing the premium above long-term Treasury bills to 11 percent the first year and 8 percent the second year. Calculate revised EVA for both years.

3. Brewster is considering expanding but needs additional capital. The company could borrow money, but it is considering selling more common stock, which would increase equity to 70 percent of total financing. Total capital employed would be $3,900,000. The new after-tax operating income would be $375,000. Using the original data, calculate EVA. Then, recalculate EVA assuming the materials substitution described in Requirement 2. New after-tax income will be $375,000, and in Year 1, the premium will be 11 percent above the long-term Treasury rate. In Year 2, it will be 8 percent above the long-term Treasury rate. (Hint: You will calculate three EVAs for this requirement.)

Calculating EVA

Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $195,000 after income taxes. Capital employed equaled $2.1 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 7 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 12-point premium above the 4 percent rate on long-term Treasury bonds.

Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the new CEO of Brewster Company. He would like to improve EVA for the company. Compute EVA under each of the following independent scenarios that Brewster is considering.

Required:

Use a spreadsheet to perform your calculations and round all interim and percentage figures to four decimal places. If the EVA is negative, enter your answer as a negative amount.

1. No changes are made; calculate EVA using the original data.

$

2. Sugar will be used to replace another natural ingredient (atomic number 33) in the elderberry wine. This should not affect costs but will begin to affect the market assessment of Brewster Company, bringing the premium above long-term Treasury bills to 10 percent the first year and 7 percent the second year. Calculate revised EVA for both years.

3. Brewster is considering expanding but needs additional capital. The company could borrow money, but it is considering selling more common stock, which would increase equity to 70 percent of total financing. Total capital employed would be $3,400,000. The new after-tax operating income would be $375,000. Using the original data, calculate EVA. Then, recalculate EVA assuming the materials substitution described in Requirement 2. New after-tax income will be $375,000, and in Year 1, the premium will be 10 percent above the long-term Treasury rate. In Year 2, it will be 7 percent above the long-term Treasury rate. (Hint: You will calculate three EVAs for this requirement.)

Calculating EVA

Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $189,000 after income taxes. Capital employed equaled $2.8 million. Brewster is 45 percent equity and 55 percent 10-year bonds paying 6 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 12-point premium above the 4 percent rate on long-term Treasury bonds.

Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the new CEO of Brewster Company. He would like to improve EVA for the company. Compute EVA under each of the following independent scenarios that Brewster is considering.

Required:

Use a spreadsheet to perform your calculations and round all interim and percentage figures to four decimal places. If the EVA is negative, enter your answer as a negative amount.

1. No changes are made; calculate EVA using the original data.

$ fill in the blank 1

2. Sugar will be used to replace another natural ingredient (atomic number 33) in the elderberry wine. This should not affect costs but will begin to affect the market assessment of Brewster Company, bringing the premium above long-term Treasury bills to 10 percent the first year and 7 percent the second year. Calculate revised EVA for both years.

3. Brewster is considering expanding but needs additional capital. The company could borrow money, but it is considering selling more common stock, which would increase equity to 80 percent of total financing. Total capital employed would be $3,500,000. The new after-tax operating income would be $380,000. Using the original data, calculate EVA. Then, recalculate EVA assuming the materials substitution described in Requirement 2. New after-tax income will be $380,000, and in Year 1, the premium will be 10 percent above the long-term Treasury rate. In Year 2, it will be 7 percent above the long-term Treasury rate. (Hint: You will calculate three EVAs for this requirement.)

Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $193,000 after income taxes. Capital employed equaled $2.9 million. Brewster is 45 percent equity and 55 percent 10-year bonds paying 6 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 12-point premium above the 5 percent rate on long-term Treasury bonds.

Required:

Use a spreadsheet to perform your calculations and round all interim and percentage figures to four decimal places. If the EVA is negative, enter your answer as a negative amount.

1. No changes are made; calculate EVA using the original data.

$ ????

2. Sugar will be used to replace another natural ingredient (atomic number 33) in the elderberry wine. This should not affect costs but will begin to affect the market assessment of Brewster Company, bringing the premium above long-term Treasury bills to 10 percent the first year and 7 percent the second year. Calculate revised EVA for both years.

3. Brewster is considering expanding but needs additional capital. The company could borrow money, but it is considering selling more common stock, which would increase equity to 80 percent of total financing. Total capital employed would be $4,000,000. The new after-tax operating income would be $390,000. Using the original data, calculate EVA. Then, recalculate EVA assuming the materials substitution described in Requirement 2. New after-tax income will be $390,000, and in Year 1, the premium will be 10 percent above the long-term Treasury rate. In Year 2, it will be 7 percent above the long-term Treasury rate. (Hint: You will calculate three EVAs for this requirement.)

Calculating EVA Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $188,000 after income taxes. Capital employed equaled $2.6 million. Brewster is 45 percent equity and 55 percent 10-year bonds paying 7 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 13-point premium above the 4 percent rate on long-term Treasury bonds. Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the new CEO of Brewster Company. He would like to improve EVA for the company. Compute EVA under each of the following independent scenarios that Brewster is considering. Required: Use a spreadsheet to perform your calculations and round all interim and percentage figures to four decimal places. If the EVA is negative, enter your answer as a negative amount. 1. No changes are made; calculate EVA using the original data. $ 2. Sugar will be used to replace another natural ingredient (atomic number 33) in the elderberry wine. This should not affect costs but will begin to affect the market assessment of Brewster Company, bringing the premium above long-term Treasury bills to 11 percent the first year and 8 percent the second year. Calculate revised EVA for both years. EVA Year 1 $ Year 2 $ 3. Brewster is considering expanding but needs additional capital. The company could borrow money, but it is considering selling more common stock, which would increase equity to 80 percent of total financing. Total capital employed would be $3,800,000. The new after-tax operating income would be $370,000. Using the original data, calculate EVA. Then, recalculate EVA assuming the materials substitution described in Requirement 2. New after-tax income will be $370,000, and in Year 1, the premium will be 11 percent above the long-term Treasury rate. In Year 2, it will be 8 percent above the long-term Treasury rate. (Hint: You will calculate three EVAs for this requirement.) EVA Year 1 $ Year 1 (11% premium) $ Year 2 (8% premium) $

The slope of a regression tells us:

1. The covariance of X and Y
2. The marginal impact of X on Y
3. The marginal impact of Y on X
4. The level of X when Y is zero
5. The level of Y when X is zero

2. The intercept of a regression tells us:

1. The level of Y when X is zero
2. The level of X when Y is zero
3. The marginal impact of Y on X
4. The marginal impact of X on Y
5. The covariance of X and Y

3. ∑(Y – Ŷ)² is essentially a measure of

1. How much our predictions miss the actual data
2. How much variance we explain with X
3. How much variance we explain with Y
4. The covariance between the prediction and X
5. How much our predictions deviate from X

4. The main difference between the calculation of Pearson’s r and the slope of a regression is

1. The inclusion of the covariance in the numerator
2. The inclusion of the SSx in the denominator
3. The inclusion of the SSy in the denominator
4. The inclusion of the SSx in the numerator
5. The inclusion of the SSy in the numerator

5. A regression with a slope of 4 tells us

1. The slope is large and significant
2. The slope is large but not significant
3. The slope is small and significant
4. The slope is small and not significant
5. Not enough information to decide

6. A significance test for beta that fails to reject the null

1. Cannot distinguish beta from zero
2. Lacks sufficient information to make a decision
3. Can distinguish beta from zero
4. Tells us that beta is negative
5. Tells us we have made a Type I Error

The slope of a regression tells us:

1. The covariance of X and Y
2. The marginal impact of X on Y
3. The marginal impact of Y on X
4. The level of X when Y is zero
5. The level of Y when X is zero

2. The intercept of a regression tells us:

1. The level of Y when X is zero
2. The level of X when Y is zero
3. The marginal impact of Y on X
4. The marginal impact of X on Y
5. The covariance of X and Y

3. ∑(Y – Ŷ)² is essentially a measure of

1. How much our predictions miss the actual data
2. How much variance we explain with X
3. How much variance we explain with Y
4. The covariance between the prediction and X
5. How much our predictions deviate from X

4. The main difference between the calculation of Pearson’s r and the slope of a regression is

1. The inclusion of the covariance in the numerator
2. The inclusion of the SSx in the denominator
3. The inclusion of the SSy in the denominator
4. The inclusion of the SSx in the numerator
5. The inclusion of the SSy in the numerator

5. A regression with a slope of 4 tells us

1. The slope is large and significant
2. The slope is large but not significant
3. The slope is small and significant
4. The slope is small and not significant
5. Not enough information to decide

6. A significance test for beta that fails to reject the null

1. Cannot distinguish beta from zero
2. Lacks sufficient information to make a decision
3. Can distinguish beta from zero
4. Tells us that beta is negative
5. Tells us we have made a Type I Error

What your top three takeaways are from this article. As a supervisor or manager, how would you apply these points?

The most important influence on ethical behavior in the workplace is overall company culture, which determines whether employees are valued or belittled and whether stakeholders are treated with trust or suspicion. A company that bases its policies and decisions on deeply rooted ethics will create a culture in which employees are naturally disposed to act ethically, too. The type of integrity that is at the root of an ethical company culture cannot be faked or taught, but it can be contagious and inspiring. As Jill Young of South University's School of Business explains, "If you act with integrity, ethical behavior is just a natural progression."
Customer Service
The values that shape an ethical company culture influence the relationships that a business maintains with its customers. An ethical company will train employees to treat customers with dignity and respect, and to be fair and honest with them. Employees who see such behavior as an integral part of customer service will understand the depth of the company's commitment to ethical behavior. They will likely model their work accordingly because ethical behavior can inspire kindness, honesty and fairness.
Human Resources
Ethical human resource policies are vital to creating and maintaining an ethical company culture. Employees who are treated with basic decency are more likely to be content with their jobs. When employees feel exploited, they are prone to overt unethical behavior such as theft, as well as more subtle offenses such as using company resources for personal gain. When employees are fairly compensated for their work, they are likely to give more to the company and less inclined to take advantage of opportunities to cut corners or exploit situations for personal gain
Product Integrity
A company culture that inspires ethical behavior in its employees will probably provide products and services created with ethical values in mind. For example, a food business that uses optimally fresh ingredients handled in a clean and compliant facility most likely won't have to be dishonest with customers who get sick from eating the company's food. Employees who know they can stand behind the products they sell will probably be inspired to act ethically in other facets of their work life.
Competitive Integrity
Although a company's competitors are often seen as enemies, a truly ethical company extends its solid values to the way it treats its competitors as well as its stakeholders. Calling a competitor, pretending to be a customer and asking questions that you will use to create competing products is dishonest. Employees who are asked to engage in this type of behavior get the message that all company values are questionable, and this impression will interfere with your overall efforts to maintain an ethical workplace.

On October 1, 2018, Santana Rey launched a computer services company, Business Solutions, that is organized as a corporation and provides consulting services, computer system installations, and custom program development. Rey uses the calendar year for reporting purposes and expects to prepare the company’s first set of financial statements on December 31, 2018. Oct. 1 S. Rey invested $48,000 cash, a $27,000 computer system, and $8,500 of office equipment in the company in exchange for its common stock. 3 The company purchased $1,340 of computer supplies on credit from Harris Office Products. 6 The company billed Easy Leasing $5,500 for services performed in installing a new web server. 8 The company paid $1,340 cash for the computer supplies purchased from Harris Office Products on October 3. 10 The company hired Lyn Addie as a part-time assistant for $130 per day, as needed. 12 The company billed Easy Leasing another $2,300 for services performed. 15 The company received $5,500 cash from Easy Leasing as partial payment toward its account. 17 The company paid $725 cash to repair computer equipment damaged when moving it. 20 The company paid $1,728 cash for advertisements published in the local newspaper. 22 The company received $2,300 cash from Easy Leasing toward its account. 28 The company billed IFM Company $5,238 for services performed. 31 The company paid $910 cash for Lyn Addie’s wages for seven days of work this month. 31 The company paid $3,500 cash in dividends to the owner (sole shareholder). Required: Enter the amount of each transaction on individual items of the accounting equation. (Enter decreases to account balances with a minus sign. Enter as per the transaction order provided in the question data.)

Income Statement

Year Ended July 31, 2018

Net Sales Revenue

$28,000

Cost of Goods Sold

10,800

Gross Profit

17,200

Operating Expenses:

Selling Expenses

$690

Administrative Expenses

1,550

Total Operating Expenses

2,240

Operating Income

14,960

Other Income and (Expenses):

Interest Expense

?

Total Other Income and (Expenses)

?

Net Income before Income Tax Expense

?

Income Tax Expense

2,810

Net Income

$ ?

The income statement for

UtahUtah

Communications follows. Assume

UtahUtah

Communications signed a​ 3-month,

9 %9%​,

$ 60 comma 000$60,000

note on

JuneJune

​1,

20182018​,

and that this was the only note payable for the company.

LOADING...

​(Click the icon to view the income​ statement.)

Requirements

Requirement 1. Fill in the missing information for

UtahUtah​'s

year ended

JulyJuly

3131​,

20182018​,

income statement. Round to the nearest dollar.​ (Use a​ 12-month year for interest computations. Use a minus sign or parentheses to enter other​ expenses.)

Requirement 2. Compute the​ times-interest-earned ratio for the company. Round to two decimals.

Select the formula and enter the amounts to compute the​ times-interest-earned ratio. ​(Round your answer to two decimal​ places, X.XX.)