Calculate watervans economic value added

Question # 00766515 Posted By: newime57 Updated on: 06/23/2020 02:46 PM Due on: 06/29/2020

Subject Finance Topic Finance Tutorials:

Question

Here are simplified financial statements for Watervan Corporation:

INCOME STATEMENT (Figures in $ millions)
Net sales	$ 895
Cost of goods sold	755
Depreciation	45
Earnings before interest and taxes (EBIT)	$ 95
Interest expense	26
Income before tax	$ 69
Taxes	33
Net income	$ 36

BALANCE SHEET (Figures in $ millions)
	End of Year	Start of Year
Assets
Current assets	$ 383	$ 340
Long-term assets	$ 286	$ 236
Total assets	$ 669	$ 576
Liabilities and shareholders' equity
Current liabilities	$ 208	$ 171
Long-term debt	$ 122	$ 135
Shareholders' equity	$ 339	$ 270
Total liabilities and shareholders' equity	$ 669	$ 576

The company's cost of capital is 7.50%.

a. Calculate Watervan's economic value added (EVA)

b. What is the company's return on capital? (Use start-of-year rather than average capital.)

c. What is its return on equity? (Use start-of-year rather than average equity.)

d. Is the company creating value for its shareholders?

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