Problem 4-3 Measuring Performance (LO2) Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 886.00 Cost of goods sold 746.00 Depreciation 36.00 Earnings before interest and taxes (EBIT) $ 104.00 Interest expense 17.00 Income before tax $ 87.00 Taxes 18.27 Net income $ 68.73 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Current assets $ 374 $ 322 Long-term assets 268 227 Total assets $ 642 $ 549 Liabilities and shareholders’ equity Current liabilities $ 199 $ 162 Long-term debt 113 126 Shareholders’ equity 330 261 Total liabilities and shareholders’ equity $ 642 $ 549 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?

Problem 4-3 Measuring Performance (LO2) Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 886.00 Cost of goods sold 746.00...

Problem 4-3 Measuring Performance (LO2)

Here are simplified financial statements for Watervan Corporation:

INCOME STATEMENT
(Figures in $ millions)
Net sales	$	886.00
Cost of goods sold		746.00
Depreciation		36.00
Earnings before interest and taxes (EBIT)	$	104.00
Interest expense		17.00
Income before tax	$	87.00
Taxes		18.27
Net income	$	68.73

BALANCE SHEET
(Figures in $ millions)
	End of Year		Start of Year
Assets
Current assets	$	374		$	322
Long-term assets		268			227
Total assets	$	642		$	549
Liabilities and shareholders’ equity
Current liabilities	$	199		$	162
Long-term debt		113			126
Shareholders’ equity		330			261
Total liabilities and shareholders’ equity	$	642		$	549

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?

Jun 06, 2022

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Problem 4-3 Measuring Performance (LO2) Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 886.00 Cost of goods sold 746.00...

Problem 4-3 Measuring Performance (LO2)

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