Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $900.00 Cost of goods sold Depreciation Earnings before interest and taxes (EBIT) Interest expense Income before tax 760.00 50.00 $ 90.00 31.00 $ 59.00 12.39 $ 46.61 Taxes Net income BALANCE SHEET (Figures in $ millions) End of Start Year of Year Assets Current assets $ 388 $ 350 Long-term assets 296 241 Total assets $ 684 $ 591 Liabilities and shareholders' equity Current liabilities $ 176 $ 213 Long-term debt Shareholders' equity 127 140 344 256 Total liabilities and shareholders' equity $ 684 $ 572 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 $900.00 Cost of goods sold Depreciation Earnings before interest and taxes (EBIT) Interest expense Income before tax 760.00 50.00 $ 90.00 31.00 $ 59.00 12.39 $ 46.61 Taxes Net income BALANCE SHEET (Figures in $ millions) End of Start Year of Year Assets Current assets $ 388 $ 350 Long-term assets 296 241 Total assets $ 684 $ 591 Liabilities and shareholders' equity Current liabilities $ 176 $ 213 Long-term debt Shareholders' equity 127 140 344 256 Total liabilities and shareholders' equity $ 684 $ 572 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?
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter15: Financial Statement Analysis
Section: Chapter Questions
Problem 19BEA
Related questions
Question
![Here are simplified financial statements for Watervan Corporation:
INCOME STATEMENT
(Figures in $ millions)
Net sales
$900.00
Cost of goods sold
Depreciation
Earnings before interest and taxes (EBIT)
Interest expense
Income before tax
760.00
50.00
$ 90.00
31.00
$ 59.00
12.39
$ 46.61
Taxes
Net income
BALANCE SHEET
(Figures in $ millions)
End of
Start
Year
of Year
Assets
Current assets
$ 388
$ 350
Long-term assets
296
241
Total assets
$ 684
$ 591
Liabilities and shareholders' equity
Current liabilities
$ 176
$ 213
Long-term debt
Shareholders' equity
127
140
344
256
Total liabilities and shareholders' equity
$ 684
$ 572
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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F224ef53d-2467-4066-8c75-8e659288aa30%2Fdd316740-bba2-441a-b1cf-1abb8ad92f80%2Fo56nawo_processed.png&w=3840&q=75)
Transcribed Image Text:Here are simplified financial statements for Watervan Corporation:
INCOME STATEMENT
(Figures in $ millions)
Net sales
$900.00
Cost of goods sold
Depreciation
Earnings before interest and taxes (EBIT)
Interest expense
Income before tax
760.00
50.00
$ 90.00
31.00
$ 59.00
12.39
$ 46.61
Taxes
Net income
BALANCE SHEET
(Figures in $ millions)
End of
Start
Year
of Year
Assets
Current assets
$ 388
$ 350
Long-term assets
296
241
Total assets
$ 684
$ 591
Liabilities and shareholders' equity
Current liabilities
$ 176
$ 213
Long-term debt
Shareholders' equity
127
140
344
256
Total liabilities and shareholders' equity
$ 684
$ 572
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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