Here are simplified financial statements for Watervan Corporation:

Question 1

INCOME STATEMENT
(Figures in $ millions)
Net sales	$ 882
Cost of goods sold	742
Depreciation	32
Earnings before interest and taxes (EBIT)	$ 108
Interest expense	13
Income before tax	$ 95
Taxes	33
Net income	$ 62

BALANCE SHEET
(Figures in $ millions)
	End of Year		Start of Year
Assets
Current assets	$	370			$	314
Long-term assets		260				223
Total assets	$	630			$	537
Liabilities and shareholders equity
Current liabilities	$	195			$	158
Long-term debt		109				122
Shareholders equity		326				257
Total liabilities and shareholders equity	$	630			$	537

The companys cost of capital is 8.00%.

a.	Calculate Watervans economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Economic value added

$million

b.	What is the companys return on capital? (Use start-of-year rather than average capital.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Return on capital

%

c.	What is its return on equity? (Use start-of-year rather than average equity.) (Enter your answer as a percent rounded to 2 decimal places.)

Return on equity

%

d.

Is the company creating value for its shareholders?

Yes

No

Question 2

Here are simplified financial statements for Phone Corporation in a recent year:

INCOME STATEMENT (Figures in $ millions)
Net sales	$ 13,100
Cost of goods sold	4,010
Other expenses	4,042
Depreciation	2,488
Earnings before interest and taxes (EBIT)	$ 2,560
Interest expense	680
Income before tax	$ 1,880
Taxes (at 30%)	564
Net income	$ 1,316
Dividends	$ 866

BALANCE SHEET
(Figures in $ millions)
		End of Year		Start of Year
Assets
Cash and marketable securities		$	88			$	157
Receivables			2,332				2,470
Inventories			182				233
Other current assets			862				927
Total current assets		$	3,464			$	3,787
Net property, plant, and equipment			19,963				19,905
Other long-term assets			4,206				3,760
Total assets		$	27,633			$	27,452
Liabilities and shareholders equity
Payables		$	2,554			$	3,030
Short-term debt			1,414				1,568
Other current liabilities			806				782
Total current liabilities		$	4,774			$	5,380
Long-term debt and leases			7,267				7,012
Other long-term liabilities			6,168				6,139
Shareholders equity			9,424				8,921
Total liabilities and shareholders equity		$	27,633			$	27,452

Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate calculations. Round your percentage answers "Return on equity", "Return on assets", Return on capital" and "Operating profit margin" to 2 decimal places and the rest to 2 decimal places.)

a.	Return on equity (Use average equity.)	%
b.	Return on assets (Use after-tax operating income and average assets.)	%
c.	Return on capital (Use after-tax operating income and average capital.)	%
d.	Days in inventory (Use beginning inventory.)	days
e.	Inventory turnover (Use beginning inventory.)
f.	Average collection period (Use beginning receivables.)	days
g.	Operating profit margin (Use after-tax operating income.)	%
h.	Long-term debt ratio (Use end of year values.)
i.	Total debt ratio (Use end of year values.)
j.	Times interest earned
k.	Cash coverage ratio
l.	Current ratio (Use end of year values.)
m.	Quick ratio (Use end of year values.)

Question 3

Long-term debt ratio	0.3
Times interest earned	10.0
Current ratio	1.2
Quick ratio	1.0
Cash ratio	0.4
Inventory turnover	3.0
Average collection period	73	days

Use the above information from the tables to work out the following missing entries, and then calculate the companys return on equity. Note: Turnover and the average collection period are calculated using start-of-year, not average, values. (Enter your answers in millions. Round intermediate calculations and final answers to 2 decimal places.)

INCOME STATEMENT
(Figures in $ millions)
Net sales	$
Cost of goods sold
Selling, general, and administrative expenses	20.00
Depreciation	30.00
Earnings before interest and taxes (EBIT)	$
Interest expense
Income before tax	$
Tax (35% of income before tax)
Net income	$

BALANCE SHEET

(Figures in $ millions)

This Year

Last Year

Assets

Cash and marketable securities

$

$30

Accounts receivable

44

Inventories

36

Total current assets

$

$ 110

Net property, plant, and equipment

35

Total assets

$

$145

Liabilities and shareholders equity

Accounts payable

$35.00

$ 30

Notes payable

40.00

45

Total current liabilities

75

Long-term debt

26

Shareholders equity

44

Total liabilities and shareholders equity

$195.00

$145

Question 4

In 2014 Electric Autos had sales of $110 million and assets at the start of the year of $170 million. If its return on start-of-year assets was 20%, what was its operating profit margin? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Operating profit margin

%

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