Question

Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 889.00 Cost of goods sold 749.00 Depreciation 39.00 Earnings before interest and taxes (EBIT) $ 101.00 Interest expense 20.00 Income before tax $ 81.00 Taxes 17.01 Net income $ 63.99 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Current assets $ 377 $ 328 Long-term assets 274 230 Total assets $ 651 $ 558 Liabilities and shareholders’ equity Current liabilities $ 202 $ 165 Long-term debt 116 129 Shareholders’ equity 333 264 Total liabilities and shareholders’ equity $ 651 $ 558 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?

Answer 1