Question

Here are simplified financial statements for Watervan Corporation:

INCOME STATEMENT
(Figures in $ millions)
Net sales	$	899.00
Cost of goods sold		759.00
Depreciation		49.00
Earnings before interest and taxes (EBIT)	$	91.00
Interest expense		30.00
Income before tax	$	61.00
Taxes		21.35
Net income	$	39.65

BALANCE SHEET
(Figures in $ millions)
	End of Year				Start of Year
Assets
Current assets	$	387			$	348
Long-term assets		294				240
Total assets	$	681			$	588
Liabilities and shareholders’ equity
Current liabilities	$	212			$	175
Long-term debt		126				139
Shareholders’ equity		343				274
Total liabilities and shareholders’ equity	$	681			$	588

The company’s cost of capital is 9%.

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?

• Yes

• No

rev: 09_22_2017_QC_CS-101846, 10_31_2017_QC_CS

Answer 1