Question

Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales...

Here are simplified financial statements for Watervan Corporation:

INCOME STATEMENT
(Figures in $ millions)
Net sales $

888.00

Cost of goods sold

748.00

Depreciation

38.00

Earnings before interest and taxes (EBIT) $

102.00

Interest expense

19.00

Income before tax $

83.00

Taxes

17.43

Net income $

65.57

BALANCE SHEET
(Figures in $ millions)
End of Year Start of Year
Assets
Current assets $

376

$

326

Long-term assets

272

229

Total assets $

648

$

555

Liabilities and shareholders’ equity
Current liabilities $

201

$

164

Long-term debt

115

128

Shareholders’ equity

332

263

Total liabilities and shareholders’ equity $

648

$

555

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?

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