Attempts: Average: /35 12. The calculation of a firm's Market Value Added (MVA) and Economic Value Added (EVA) A Aa Ryker, your newly appointed boss, has tasked you with evaluating the following financial data for Water and Power Co. to determine how Water & Power's value 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. Assets: Water and Power Co. Income Statement January 1 - December 31, Year 2 Year 2 Sales $11,000,000 Expenses: 8,800,000 EBITDA 2,200,000 Depreciation and amortization expense 385,000 EBIT 1,815,000 Interest expense EBT 1,485,000 Tax expense (409) 594,000 Net Income $891.000 Year 1 $10,000,000 8.200.000 1,800,000 350,000 1,450,000 250,000 1.200.000 480,000 $720.000 $570,000 1.900.000 3,325,000 5,795,000 3,705,000 $9,500,000 30,000 Water and Power Co. Balance Sheet December 31, Year 2 Year 2 Cash and cash equivalents $741,000 Receivables 200.000 Inventory 4,322,500 Current assets 7,533,500 Net fixed assets 4,816,500 Total assets $12,350,000 Liabilities and Equity: Accounts payable $1,852,500 Accruals 1,204,125 Notes payable 2,593,500 Total current liabilities 5,650,125 Long-term debt 2,377,375 Total liabilities 8,027,500 Common stock ($1 par) 864,500 Retained earnings 3,458,000 Total equity 4,322,500 Total debt and equity $12,350,000 $432,000 Common dividends Addition to retained earnings Excludes depreciation and amortization $534,600 $356,400 $288,000 $1,425,000 926,250 1,995,000 4,346,250 1,828,750 6,175,000 665,000 2.660,000 3,325,000 500.000 Shares outstanding Weighted average cost of capital 864,500 7.98% 665,000 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 To facilitate your analy decimal places. complete the following table, and use the results to answ related questions. Round your percentage change answers to two . . Company Growth and Performance Metrics Metric Year 2 Year 1 Percentage Change Using the change in Water & Power's EVA as the decision criterion, which type of investment recommendation should you make to your clients? O A buy recommendation A sell recommendation O A hold recommendation 1 $11,000,000 $891,000 $10,000,000 $720,000 $1,070,000 J Sales Net income Net cash flow (NCF) Net operating working capital (NOWC) Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) Market price per share 18 18 UUUUUU & U JU 3 33 22 MVA Which of the following statements are correct? Check all that apply. For any given year, one way to compute Water & Power's EVA is as the difference between its NOPAT (such as $870,000) and the product of its operating capital (57,148,750) and its weighted average cost of capital ($7.30). Water & Power's NCF is calculated by adding its annual interest expense to the corresponding SR 188 012 Market value of equity Book value of equity Market Value Added (MVA) 13.03% 18 53,325,000 49.03% year's net income EVA Calcu 30.00% The percentage change in Water & Power's EVA indicates that management has decreased its value. The percentage change in Water & Power's MVA indicates that its management has increased the firm's value. An increase in the number of common shares outstanding must increase the market value of the firm's equity. Net operating profit after-tax (NOPAT) Investor-supplied operating capital Weighted average cost of capital Dollar cost of capital Return on invested capital (ROIC) Economic Value Added (EVA) 7.30 M 42.11% -3.70%