Question

Here are simplified financial statements for Watervan Corporation:

INCOME STATEMENT
(Figures in $ millions)
Net sales	$	900.00
Cost of goods sold		760.00
Depreciation		50.00
Earnings before interest and taxes (EBIT)	$	90.00
Interest expense		31.00
Income before tax	$	59.00
Taxes		12.39
Net income	$	46.61

BALANCE SHEET
(Figures in $ millions)
	End of Year				Start of Year
Assets
Current assets	$	388			$	350
Long-term assets		296				241
Total assets	$	684			$	591
Liabilities and shareholders’ equity
Current liabilities	$	213			$	176
Long-term debt		127				140
Shareholders’ equity		344				256
Total liabilities and shareholders’ equity	$	684			$	572

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 return on equity? (Use start-of-year rather than average equity.) (Enter your answer as a percent rounded to 2 decimal places.)

d. Is the company creating value for its shareholders?

Please show how you got your totals... I specially don't understand how to calculate the EVA! Thanks so much!

Answer 1