Question
Problem 4-3 Measuring Performance (LO2) Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 890.00 Cost of
Problem 4-3 Measuring Performance (LO2)
Here are simplified financial statements for Watervan Corporation:
INCOME STATEMENT | ||
(Figures in $ millions) | ||
Net sales | $ | 890.00 |
Cost of goods sold | 750.00 | |
Depreciation | 40.00 | |
Earnings before interest and taxes (EBIT) | $ | 100.00 |
Interest expense | 21.00 | |
Income before tax | $ | 79.00 |
Taxes | 27.65 | |
Net income | $ | 51.35 |
BALANCE SHEET | |||||||
(Figures in $ millions) | |||||||
End of Year | Start of Year | ||||||
Assets | |||||||
Current assets | $ | 378 | $ | 330 | |||
Long-term assets | 276 | 231 | |||||
Total assets | $ | 654 | $ | 561 | |||
Liabilities and shareholders equity | |||||||
Current liabilities | $ | 203 | $ | 166 | |||
Long-term debt | 117 | 130 | |||||
Shareholders equity | 334 | 265 | |||||
Total liabilities and shareholders equity | $ | 654 | $ | 561 | |||
The companys cost of capital is 9%.
a. Calculate Watervans economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
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.)
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.)
d. Is the company creating value for its shareholders?
-
Yes
-
No
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started