Requirements a. Calculate the following for Sudanci. 1. EVA for fiscal 2020 2. MVA as of fiscal year-end 2020 b. Discuss the two primary differences in calculating economic profit (as used in EVA) versus accounting profit. B. Peninsular has another client who has inquired about the valuation method suited for comparison of companies in an industry that has the following characteristics: 1. 2. 3. Principal competitors within the industry are located in the United States, France, Japan, and Brazil The industry is currently operating at a cyclical low, with many firms reporting losses. The industry is subjected to rapid technological change. Jones recommends that the client consider the following valuation ratios: Price to earnings Price to book value Price to sales a. Determine which one of the three valuation ratios is most appropriate for comparing companies in industry. Support your answer with two reasons that make that ratio superior to either of the other - ratios. The client also has expressed interest in economic value added as a measure of company performance asks his assistant to prepare a presentation about EVA for the client. The assistant's presentation includes the following statements: 1. It EVA is a measure of a excess shareholder value generated over a long period of time. 2. In calculating EVA, the cost of capital is the weighted average of the after-tax yield on long-term bonds with similar risk and the cost of equity as calculated by the capital asset pricing model. 3. EVA provides a consistent measure of performance across firms. b. Determine whether each of the statements is correct or incorrect and, if incorrect explain why. Note: Explanations cannot repeat the statement in negative form but must indicate what is needed to make the statement correct. A. One week after the spin-off of Sundanci, Carroll asks analyst Jim Martin to economic value added and market value added to measure the performance of Sandanci. In addition the information provided below: Sundaci Actual 2019 and 2020 Financial Statements for the fiscal Year Ending May31 ($ Millions, except per share) 2019 2020 $ 474 20 368 86 26 $ 598 23 460 115 35 80 24 $0.952 $ 0.286 84.0 60 18 $0.714 $ 0.214 84.0 Income Statement Revenue Depreciation Other operating costs Income Before Taxes Taxes Net Income Dividends Earnings Per Share Dividend Per Share *Common shares outstanding (millions) Balance Sheet Current asset Net property, plant and equipment Total Assets Current Liabilities Long-term debt Total Liabilities Shareholders' equity Total liabilities and equity Capital expenditures $ 201 474 675 57 0 57 618 675 34 $ 326 489 815 141 0 141 674 815 38 Selected Financial Information for Sundance 14% 13% 26 Required rate of return or equity Growth rate of industan Industry P/E ratio Martin uses the following information in his analysis: Adjusted net operating profit after tax is $100 million. Total adjusted capital is $700 million Closing stock price is $26
