Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT(Figures in $ millions)Net sales$ 881Cost of goods sold741Depreciation31Earnings before interest and taxes (EBIT)$ 109Interest expense12Income

Here are simplified financial statements for Watervan Corporation:

INCOME STATEMENT(Figures in $ millions)Net sales$ 881Cost of goods sold741Depreciation31Earnings before interest and taxes (EBIT)$ 109Interest expense12Income before tax$ 97Taxes20Net income$ 77BALANCE SHEET(Figures in $ millions)End of YearStart of YearAssetsCurrent assets$ 369$ 312Long-term assets258222Total assets$ 627$ 534Liabilities and shareholders equityCurrent liabilities$ 194$ 157Long-term debt108121Shareholders equity325256Total liabilities and shareholders equity$ 627$ 534

The companys cost of capital is 8.5%.

Required:

Calculate Watervans economic value added (EVA).

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

What is the companys 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.

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.

Is the company creating value for its shareholders?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting And Reporting

Authors: Barry Elliott, Jamie Elliott

20th Edition

1292399805, 978-1292399805

More Books

Students also viewed these Accounting questions