Question

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	120	120
Price	$ 27.78	$ 25.28
WACC	9.00 %

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.

$

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.

$

Answer 1

(a)-Rosnan's 2013 market value added (MVA)

Rosnan's 2013 market value added (MVA) = Market value of equity – Book value of equity

= [Number of shares x Market price per share] – [Common stock + Retained earnings]

= [120 x $27.78] – [$1,225 + $700]

= $3,334 - $1,925

= $1,409

  

(b)-Rosnan's 2013 economic value added (EVA)

Rosnan's 2013 economic value added (EVA) = NOPAT – Cost of capital invested

= [EBIT x (1 – Tax rate)] – [(Note payable + Long-term debt + Common stock + Retained earnings) x WACC]

= [$650 x (1 – 0.40)] – [($150 + $450 + $1,225 + $700) x 9.00%]

= [$650 x 0.60] – [$2,525 x 9.00%]

= $390.00 - $227.25

= $162.75