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OME 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

OME 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

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 $ 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:

  1. Calculate Watervan’s economic value added (EVA).

    Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.

  2. 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.

  3. 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.

  4. Is the company creating value for its shareholders?

 
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