E12-36B. (Learning Objective 5: Using economic value added to measure corporate performance) Two companies with different economic-value-added (EVA®) profiles are Houle Oil Pipeline, Inc., and Johnson Bank Limited. Adapted versions of the two companies’ financial statements are presented here (in millions):

Requirements 1. Before performing any calculations, which company do you think represents the better investment?
Give your reason.
2. Compute the EVA® for each company and then decide which company’s shares you would rather hold as an investment. Assume both companies’ cost of capital is 11.0% and use unadjusted net income in your calculations.

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Balance Sheet data: Total assets. Interest-bearing debt....... All other liabilities......... Shareholders' equity. Total liabilities and equity.. Income Statement data: Total revenue...... Interest expense. Net income... Houle Oil Pipeline, Inc. Johnson Bank Limited $ 4,338 $14,451 $ 1,250 $ 5 2,900 2,585 188 11,861 $ 4,338 $14,451 $10,900 80 210 $ 3,700 9 1,180