Questions

1) In simple business language, explain to your CEO what EVA is measuring.

2) Why is EVA a better valuation metric than Net Income?

3) Is the current EVA good? bad?What factors should you consider?

4) Calculate the company's ROIC.How does it relate to EVA (explain and show).

Excel File Edit View Insert Format Tools Data Window Help 48% Sat 12:48 PM Q AutoSave OFF EVA HW Home Insert Draw Page Layout Formulas Data Review View Tell me Share Comments Arial 12 AA D Wrap Text v Accounting Insert v Six Delete Paste BIUV MVAv FE Merge & Center v v % 9 00 Conditional Format Cell Formatting as lable Styles Format Sort & Find & deas Sensitivity Filter Select E17 X V fx =D20*(0.79) A B D G H K M N P Q R S U V w X Y Economic Value Added (EVA) The Bellante Company is evaluating how they performed over the last year. They have done the traditional ratio analysis but would like to focus more on value creation. Below are their Income Statement and Balance Sheet for the current year just ended. Economic Value Added and Return on Invested Capital are two value based metrics they would like evaluate. Calculate the Company's EVA and ROIC for the year just ended. Income Statement Current Year 12 Sales COGS Depreciation Expense Gross Profit On JEAGA JEACA CACA CA CA CA IEACA CA 2,000,000 625,00 50,00 1,325,000 16 Selling Expenses 175,000 nopat 17 Advertising Expense 250,000 $ 493,750.00 18 R&D Expenses 19 Administrative Expenses 150,00 25,000 EBIT Interest Expense 625,000 200,000 EBT Taxes (21%) 425,000 89,250 24 Net Income 335,750 Balance Sheet Assets 12/31/CY Liabilities and Equity 30 Cash 325,000 A/P 100,000 A/R 425,000 Notes Payable Inventories Net PP&E 600,000 2,950,000 Long-Term Debt A| CA CACA CA CA 300,000 1,800,000 Common Stock 250,000 Total Assets 4,300,000 Retained Earnings 1,850,000 Total Liab & Equity 4,300,000 8 Additional Information: 39 Tax rate 21% Company WACC 11% 45 1) In simple business language, explain to your CEO what EVA is measuring. EVA Homework Sheet2 Sheet3 + Ready + 83% 13.465 AN O W X 9 P 1 1 0