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	170	170
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)
MVA = (P0 × Number of shares outstanding) – BV of common equity
MVA = ($27.78 × 170) – $1925	$2,798
Statement of Stockholders’ Equity, 2013		Amount
	Shares	Common Stock	Retained Earnings	Total Stockholders’ Equity
Balances, 12/31/12	170	$1,225.00	$400.00	$1,625.00
2013 Net income			353
Cash dividends			-53
Addition (Subtraction) to retained earnings				300
Balances, 12/31/14	170	$1,225.00	$700.00	$1,925.00
b)
EVA = EBIT(1 – T) – (Total invested capital)( After-tax % cost of capital)
Total invested capital 2013 = Notes payable + Long-term debt + Common equity
Total invested capital 2013 = 150 + 450 + 1925	$2,525.00
EVA = 650 x (1- 40%) – $2525 x 9%	$163