Two companies with different economic-value-added (EVA®) profiles are Karin Oil Pipeline, Inc., and Larson Bank Limited. Adapted versions of the two companies€™ financial statements are presented here (in millions):

Requirements
1. Before performing any calculations, which company do you think represents the better investment? Give your reason.
2. Compute the EVA® for each company and then decide which company€™s stock you would rather hold as an investment. Assume that both companies€™ cost of capital is12.5%.

Transcribed Image Text:

Karin Oil Pipeline, Inc. Bank Limited (In millions) Balance sheet data: Total assets Interest-bearing debt.S 1,246 All other liabilities. Stockholders' equity. 30 Total liabilities and equity 4,353 S 4,353 $14,200 2,605 11,578 $14,200 2,800 Income statement data: Total revenue S10,807 S 3,697 Interest expense Net i S 195 S 1,496