Economic Value Added (EVA) Assignment | Homework For You

Here are simplified financial statements for Watervan Corporation:

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(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

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(Figures in $ millions)
End of Year Start of Year
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?

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