Here are simplified Tinancial 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%. $ 901.00 761.00 51.00 $89.00 32.00 $ 57.00 11.97 $ 45.03 a. Economic value added b. Return on capital c. Return on equity d. Is the company creating value for its shareholders? Yes End of Start of Year Year $ 389 298 $ 687 $ 214 128 345 $ 687 $352 242 $ 594 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.) Note: Enter your answer as a percent rounded to 2 decimal places. d. Is the company creating value for its shareholders? million % % $ 177 141 240 $ 558
Here are simplified Tinancial 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%. $ 901.00 761.00 51.00 $89.00 32.00 $ 57.00 11.97 $ 45.03 a. Economic value added b. Return on capital c. Return on equity d. Is the company creating value for its shareholders? Yes End of Start of Year Year $ 389 298 $ 687 $ 214 128 345 $ 687 $352 242 $ 594 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.) Note: Enter your answer as a percent rounded to 2 decimal places. d. Is the company creating value for its shareholders? million % % $ 177 141 240 $ 558
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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%.
$ 901.00
761.00
51.00
$89.00
32.00
$ 57.00
11.97
$ 45.03
a. Economic value added
b. Return on capital
c. Return on equity
d. Is the company creating value for its shareholders? Yes
End of Start of
Year
Year
$ 389
298
$ 687
$ 214
128
345
$ 687
$352
242
$ 594
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.)
Note: Enter your answer as a percent rounded to 2 decimal places.
d. Is the company creating value for its shareholders?
million
%
%
$ 177
141
240
$ 558
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