Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 890.00 Cost of goods sold 750.00 Depreciation 40.00 Earnings before interest and taxes (EBIT) $ 100.00 Interest expense 21.00 Income before tax $ 79.00 Taxes 16.59 Net income $ 62.41 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Current assets $ 378 $ 330 Long-term assets 276 231 Total assets $ 654 $ 561 Liabilities and shareholders’ equity Current liabilities $ 203 $ 166 Long-term debt 117 130 Shareholders’ equity 334 265 Total liabilities and shareholders’ equity $ 654 $ 561 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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