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Homework answers / question archive / 1) INCOME STATEMENT(Figures in $ millions) Net sales $891
1)
INCOME STATEMENT(Figures in $ millions)
Net sales $891.00
Cost of goods sold 751.00
Depreciation 41.00
Earnings before interest and taxes (EBIT) $99.00
Interest expense 22.00
Income before tax $77.00
Taxes 26.95
Net income $50.05
BALANCE SHEET
(Figures in $ millions)
End of Year Start of Year
Assets
Current assets $379 $332
Long-term assets $278 $232
Total assets $657 $564
Liabilities and shareholders' equity
Current liabilities $204 $167
Long-term debt $118 $131
Shareholders' equity $335 $266
Total liabilities and shareholders' equity $657 $564
The company's cost of capital is 8%.
Calculate Watervan's economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
2) From my assignment
Here are simplified financial statements for Watervan Corporation:
INCOME STATEMENT(Figures in $ millions)
Net sales $887.00
Cost of goods sold 747.00
Depreciation 37.00
Earnings before interest and taxes (EBIT) $103.00
Interest expense 18.00
Income before tax $85.00
Taxes 17.85
Net income $67.15
BALANCE SHEET(Figures in $ millions)
End of Year Start of Year
Assets
Current assets $375 $324
Long-term assets 270 228
Total assets $645 $552
Liabilities and shareholders' equity
Current liabilities $200 $163
Long-term debt 114 127
Shareholders' equity 331 262
Total liabilities and shareholders' equity $645 $552
The company's cost of capital is 8.5%.
Calculate Watervan's economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
1) Computation of the economic value added:-
Tax rate = Taxes / Income before tax
= $26.95 / $77
= 35%
Total capitalization = Long term debt + Equity
= $131 + $266
= $397 million
Economic value added = After-tax interest + Net income - (Cost of capital * Total capitalization)
= ($22 * (1 - 35%)) + $50.05 - (8% * $397)
= $14.30 + $50.05 - $31.76
= $32.59 million
2) Computation of the economic value added:-
Tax rate = Taxes / Income before tax
= $17.85 / $85
= 21%
Total capitalization = Long term debt + Equity
= $127 + $262
= $389 million
Economic value added = After-tax interest + Net income - (Cost of capital * Total capitalization)
= ($18 * (1 - 21%)) + $67.15 - (8.5% * $389)
= $14.22 + $67.15 - $33.07
= $48.31 million
