Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $884.00 Cost of goods sold Depreciation Earnings before interest and taxes (EBIT) Interest expense 744.00 34.00 $106.00 15.00 Income before tax $ 91.00 Taxes 19.11 Net income $ 71.89 BALANCE SHEET (Figures in $ millions) End of Start Year of Year Assets Current assets $ 372 $ 318 Long-term assets 264 225 Total assets $ 636 $ 543 Liabilities and shareholders' equity Current liabilities $ 197 $ 160 Long-term debt Shareholders' equity 111 124 328 259 Total liabilities and shareholders' equity $ 636 $ 543 The company's cost of capital is 8.5%. a. Calculate Watervan's economic value added (EVA). (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.) (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.) (Enter your answer as a percent rounded to 2 decimal places.) d. Is the company creating value for its shareholders?

Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $884.00 Cost of goods sold Depreciation Earnings before interest and taxes (EBIT) Interest expense 744.00 34.00 $106.00 15.00 Income before tax $ 91.00 Taxes 19.11 Net income $ 71.89 BALANCE SHEET (Figures in $ millions) End of Start Year of Year Assets Current assets $ 372 $ 318 Long-term assets 264 225 Total assets $ 636 $ 543 Liabilities and shareholders' equity Current liabilities $ 197 $ 160 Long-term debt Shareholders' equity 111 124 328 259 Total liabilities and shareholders' equity $ 636 $ 543 The company's cost of capital is 8.5%. a. Calculate Watervan's economic value added (EVA). (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.) (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.) (Enter your answer as a percent rounded to 2 decimal places.) d. Is the company creating value for its shareholders?

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Description: Here are simplified financial statements for Watervan Corporation:INCOME STATEΜΕNT(Figures in $ millions)Net sales$884.00Cost of goods soldDepreciationEarnings before interest and taxes (EBIT)Interest expense744.0034.00$106.0015.00Income before tax$

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 887.00 Cost of goods sold 747.00 Depreciation 37.00 Earnings before interest and taxes (EBIT) $ 103.00 Interest expense 18.00 Income before tax $ 85.00 Taxes 17.85 Net income $ 67.15 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Current assets $ 375 $ 324 Long-term assets 270 228 Total assets $ 645 $ 552 Liabilities and shareholders’ equity Current liabilities $ 200 $ 163 Long-term debt 114 127 Shareholders’ equity 331 262 Total liabilities and shareholders’ equity $ 645 $ 552 The company’s cost of capital is 8.5%. Required: Calculate Watervan’s economic value added (EVA). Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. What is the company’s return on capital? (Use start-of-year rather than average capital.) Note: Do not…
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