Rafael, 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. Year 1 Year 1 Water and Power Co. Income Statement January 1 - December 31, Year 2 Year 2 Sales $9,075,000 Expenses 7,260,000 EBITDA 1,815,000 Depreciation and amortization expense 317,625 EBIT 1,497,375 Interest expense 272,250 EBT 1,225,125 Tax expense (409) 490,050 Net income $735,075 $8,250,000 6,765,000 1,485,000 288,750 1,196,250 206,250 990,000 396,000 $594,000 $470,250 1,567,500 2,743,125 4,780,875 3,056,625 $7,837.500 Water and Power Co. Balance Sheet December 31, Year 2 Assets: Year 2 Cash and cash equivalents $564,300 Receivables 1,881,000 Inventory 3,291,750 Current assets 5,737,050 Net fixed assets 3,667,950 Total assets $9.405,000 Liabilities and Equity: Accounts payable $1,410,750 Accruals 916,988 Notes payable 1,975,050 Total current liabilities 4,302,788 Long-term debt 1,810,463 Total liabilities 6,113,250 Common stock ($1 par) 658,350 Retained earnings 2,633,400 Total equity 3,291,750 Total debt and equity $9,405,000 Shares outstanding 658,350 Weighted average cost of capital 7.984 Common dividends Addition to retained earnings $441,045 $294,030 $356,400 $237,600 Excludes depreciation and amortization $1,175,625 764,156 1,645,875 3,585,656 1,508,719 5,094,375 548,625 2,194,500 2,743,125 $7,837,500 548,625 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 decimal places. Company Growth and Performance Metrics Using the change in Water & Power's EVA as the decision criterion, which type of investment recommendation should you make to your clients? Percentage Change Metric Year 1 Year 2 General Metrics $9,075,000 $735,075 Sales O A hold recommendation O A buy recommendation A sell recommendation $8,250,000 $594,000 $882,750 Net Income $3,409,312 Which of the following statements are correct? Check all that apply $1.08 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 $0.67 $5.00 $19.75 $21.23 MVA Calculation Market value of equity $3,291,750 Book value of equity Market Value Added (MVA) $2,743,125 $8,092,219 EVA Calculation $898,425 Other things remaining constant, Water & Power's EVA will increase when its ROIC exceeds its WACC Water & Power's NCF is calculated by adding its annual interest expense to the corresponding year's net income For any given year, one way to compute Water & Power's EVA is as the difference between its NOPAT (such as $717,750) and the product of its operating capital ($5,897,719) and its weighted average cost of capital ($7.30). Water & Power's net income is growing at a rate greater than its sales. This could imply that either its revenues are growing more quickly than its expenses or that management is being effective in managing its costs while achieving the reported growth in sales. Other things remaining constant, either event should increase the value of the firm. Investor supplied operating capital is recorded as accounts payable, accruals, and short-term investments, 20.00% Net operating profit after tax (NOPAT) Investor-supplied operating capital Weighted average cost of capital Dollar cost of capital 7.98% Return on invested capital (ROIC) Economic Value Added (EVA)