Here are simplified financial statements for Watervan Corporation:
INCOME STATEMENT | ||
(Figures in $ millions) | ||
Net sales | $ |
885.00 |
Cost of goods sold |
745.00 |
|
Depreciation |
35.00 |
|
Earnings before interest and taxes (EBIT) | $ |
105.00 |
Interest expense |
16.00 |
|
Income before tax | $ |
89.00 |
Taxes |
31.15 |
|
Net income | $ |
57.85 |
BALANCE SHEET | |||||||
(Figures in $ millions) | |||||||
End of Year | Start of Year | ||||||
Assets | |||||||
Current assets | $ |
373 |
$ |
320 |
|||
Long-term assets |
266 |
226 |
|||||
Total assets | $ |
639 |
$ |
546 |
|||
Liabilities and shareholders’ equity | |||||||
Current liabilities | $ |
198 |
$ |
161 |
|||
Long-term debt |
112 |
125 |
|||||
Shareholders’ equity |
329 |
260 |
|||||
Total liabilities and shareholders’ equity | $ |
639 |
$ |
546 |
|||
The company’s cost of capital is 8%.
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.)
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