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a. Economic value added b. Return on capital c. Return on equity d. Is the company creating value for its shareholders? million % %

a. Economic value added b. Return on capital c. Return on equity d. Is the company creating value for its shareholders? million % %

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales Cost of goods sold Depreciation Earnings before interest and taxes (EBIT) Interest expense Income before tax Taxes Net income Assets Current assets Long-term assets Total assets BALANCE SHEET (Figures in $ millions) Liabilities and shareholders' equity Current liabilities Long-term debt Shareholders' equity Total liabilities and shareholders' equity The company's cost of capital is 8.5%. $883.00 743.00 33.00 $107.00 14.00 $93.00 19.53 $73.47 End of Start of Year Year a. Economic value added b. Return on capital c. Return on equity d. Is the company creating value for its shareholders? $371 262 $633 $ 196 110 327 $633 $316 224 $540 Required: a. Calculate Watervan's economic value added (EVA). Note: 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.) Note: 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.) $ 159 123 258 $540 Note: Enter your answer as a percent rounded to 2 decimal places. d. Is the company creating value for its shareholders? million % %
Transcribed Image Text:Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales Cost of goods sold Depreciation Earnings before interest and taxes (EBIT) Interest expense Income before tax Taxes Net income Assets Current assets Long-term assets Total assets BALANCE SHEET (Figures in $ millions) Liabilities and shareholders' equity Current liabilities Long-term debt Shareholders' equity Total liabilities and shareholders' equity The company's cost of capital is 8.5%. $883.00 743.00 33.00 $107.00 14.00 $93.00 19.53 $73.47 End of Start of Year Year a. Economic value added b. Return on capital c. Return on equity d. Is the company creating value for its shareholders? $371 262 $633 $ 196 110 327 $633 $316 224 $540 Required: a. Calculate Watervan's economic value added (EVA). Note: 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.) Note: 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.) $ 159 123 258 $540 Note: Enter your answer as a percent rounded to 2 decimal places. d. Is the company creating value for its shareholders? million % %
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