Calculate Watervan’s economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is the company’s 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.)
Problem 4-3 Measuring Performance (LO2)
Here are simplified financial statements for Watervan Corporation:
| INCOME STATEMENT | ||
| (Figures in $ millions) | ||
| Net sales | $ |
886.00 |
| Cost of goods sold |
746.00 |
|
|
36.00 |
||
| Earnings before interest and taxes (EBIT) | $ |
104.00 |
| Interest expense |
17.00 |
|
| Income before tax | $ |
87.00 |
| Taxes |
18.27 |
|
| Net income | $ |
68.73 |
| BALANCE SHEET | |||||||
| (Figures in $ millions) | |||||||
| End of Year | Start of Year | ||||||
| Assets | |||||||
| Current assets | $ |
374 |
$ |
322 |
|||
| Long-term assets |
268 |
227 |
|||||
| Total assets | $ |
642 |
$ |
549 |
|||
| Liabilities and shareholders’ equity | |||||||
| Current liabilities | $ |
199 |
$ |
162 |
|||
| Long-term debt |
113 |
126 |
|||||
| Shareholders’ equity |
330 |
261 |
|||||
| Total liabilities and shareholders’ equity | $ |
642 |
$ |
549 |
|||
The company’s cost of capital is 8.5%.
a. Calculate Watervan’s economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
b. What is the company’s 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
d. Is the company creating value for its shareholders?
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