Quantitative Problem: Rosnan Industries' 2013 and 2012 balance sheets and income statements are shown below.
| Balance Sheets: | |||
| 2013 | 2012 | ||
| Cash and equivalents | $100 | $85 | |
| Accounts receivable | 275 | 200 | |
| Inventories | 375 | 250 | |
| Total current assets | $750 | $635 | |
| Net plant and equipment | 2,000 | 1,490 | |
| Total assets | $2,750 | $2,125 | |
| Accounts payable | $150 | $85 | |
| Accruals | 75 | 50 | |
| Notes payable | 150 | 75 | |
| Total current liabilities | $375 | $210 | |
| Long-term debt | 450 | 290 | |
| Common stock | 1,225 | 1,225 | |
| Retained earnings | 700 | 400 | |
| Total liabilities and equity | $2,750 | $2,125 | |
| Income Statements: | |||
| 2013 | 2012 | ||
| Sales | $2,000 | $1,500 | |
| Operating costs excluding depreciation | 1,250 | 1,000 | |
| EBITDA | $750 | $500 | |
| Depreciation and amortization | 100 | 75 | |
| EBIT | $650 | $425 | |
| Interest | 62 | 45 | |
| EBT | $588 | $380 | |
| Taxes (40%) | 235 | 152 | |
| Net income | $353 | $228 | |
| Dividends paid | $53 | $48 | |
| Addition to retained earnings | $300 | $180 | |
| Shares outstanding | 180 | 180 | |
| Price | $31.25 | $28.75 | |
| WACC | 8.00% | ||
Using the financial statements above, what is Rosnan's 2013
market value added (MVA)? Round your answer to the nearest dollar.
Do not round intermediate calculations.
$
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Review the MVA definition and equation.
Be careful about the order of mathematical operations and parentheses.
Make sure that you include total common equity and not just retained earnings or common stock.
Using the financial statements given earlier, what is Rosnan's 2013 economic value added (EVA)? Round your answer to the nearest cent. Do not round intermediate calculations.
1. Company's market value added is an addition to shareholder's wealth that has been generating since its corporation.
market value added (MVA) = [share price * Shares of common shares outstanding] - Total equity = [ $31.25 * 180 ] - [1,225 + 700]
= [ $31.25 * 180 ] - $1925
= $5625 - $1925
= $3700
Note:- Total equity = Common stock + Retained earnings
2. economic value added (EVA) = [EBIT * (1- tax)] - [WACC * Total invested capital ]
= [ $650* (1-0.40) ] - [0.08 * 2375]
= 390 - 190
= $200
Note:- Total invested capital = Total assets - Total current liabilities
= $2,750 - $375
= $2375
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