. 12. The calculation of a firm's Market Value Added (MVA) and Economic Value Added (EVA) Asher, your newly appointed boss, has tasked you with evaluating the following financial data for Water and Power Co. to determine how Water & Power's valu has changed over the past year. The investment firm for which you work will make a positive (or "buy") recommendation to its investing clients if Water & Power's value has increased over the past year, a neutral (or "hold") recommendation if the value has remained constant, or a negative (or "sell") recommendation if the value has decreased. He has recommended that you use several metrics to ascertain how the firm's value has changed, and he has provided you with the following income statement and balance sheet. Sales Water and Power Co. Income Statement January 1 - December 31, Year 2 Year 2 $5,775,000 Expenses 4,620,000 EBITDA 1,155,000 Depreciation and amortization expense 202,125 EBIT 952,875 Interest expense 173,250 EBT 779,625 Tax expense (40%) 311,850 Net Income $467,775 Year 1 $5,250,000 4,305,000 945,000 183,750 761,250 131,250 630,000 252,000 $378,000 Year 1 $299,250 997,500 1,745,625 3,042,375 1,945,125 $4,987,500 Water and Power Co. Balance Sheet December 31, Year 2 Assets: Year 2 Cash and cash equivalents $374,063 Receivables 1,246,875 Inventory 2,182,031 Current assets 3,802,969 Net fixed assets 2,431,406 Total assets $6,234,375 Liabilities and Equity: Accounts payable $935, 156 Accruals 607,852 Notes payable 1,309,219 Total current liabilities 2,852,227 Long-term debt 1,200,117 Total liabilities 4,052,344 Common stock (51 par) 436,406 Retained earnings 1,745,625 Total equity 2,182,031 Total debt and equity $6,234,375 Shares outstanding 436,406 Weighted average cost of capital 7.98% Common dividends Addition to retained earnings 1Excludes depreciation and amortization $280,665 $187,110 $226,800 $ 151,200 $748,125 486,281 1,047,375 2,281,781 960,094 3,241,875 349,125 1,396,500 1,745,625 $4,987,500 349,125 7.30% To facilitate your analysis, complete the following table, and use the results to answer the related questions, Round your percentage change answers to two decimal places Company Growth and Performance Metrics Using the change in Water & Power's EVA as the decision Percentage criterion, which type of investment recommendation Metric Year 2 Year 1 Change should you make to your clients? General Metrics A sell recommendation Sales $5,775,000 $5,250,000 A hold recommendation Net Income $467,775 $378,000 A buy recommendation Net cash flow (NCF) $561,750 Net operating working capital (NOWC) $2,259,961 Which of the following statements are correct? Check all that apply. Earnings per share (EPS) $1.08 Dividends per share (DPS) $0.64 The percentage change in Water & Power's EVA Book value per share (BVPS) indicates that management has increased its $5.00 0.00% value. Cash fow per share (CFPS) -4.35% For any given year, one way to compute Water & Market price per share $22.22 $19.75 Power's EVA is as the difference between its MVA Calculation NOPAT (such as $456,750) and the product of its Market value of equity 40.63% operating capital ($3,753,094) and its weighted Book value of equity $2,182,031 $1,745,625 average cost of capital ($7.30). Market Value Added (MVA) Water & Power's NCF is calculated by adding its $5,149,594 annual interest expense to the corresponding EVA Calculation year's net income. Net operating profit aftertax (NOPAT) $571,725 An increase in the number of common shares Investor supplied operating capital 25.00% outstanding must increase the market value of Weighted average cost of capital 7.98% 7.30% the firm's equity. Dollar cost of capital 36.54% The percentage change in Water & Power's MVA Return on invested capital (ROIC) 0.16% indicates that its management has increased the firm's value. Economic Value Added (EVA) $197,507