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Here are simplified financial statements for Watervan Corporation:
Here are simplified financial statements for Watervan Corporation:INCOME STATEMENT (Figures in $millions)
Net Sales $882.0
Cost of goods sold 742.00
Depreciation 32.00
Earnings before interest and taxes (EBIT) $108.00
Interest expense 13.00
Income before tax $95.00
Taxes 19.95
Net income $75.05
BALANCE SHEET (Figures in $millions) End of Year Start of Year
Assets
Current assets $370 $314
Long-term assets 260 223
Total assets $630 $537
Liabilities and shareholders' equity
Current liabilities $195 $158
Long-term debt 109 122
Shareholders' equity 326 257
Total liabilities and shareholders' equity $630 $537
The company's cost of capital is 8.5%.
a) Calculate Watervan's economic value added(EVA). (Do not round intermediate calculations. 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. Answer
as a percent rounded to 2 decimal places.)
c) What is its return on equity? (Use start-of-year rather than average equity.) ( Answer as a percent rounded to two decimal places.)
d) Is the company creating value for its shareholders?
Final answer:Watervan Corporation'seconomic value added(EVA) is $53.235 million. The company's return on capital (ROC) is 22.57%, and its return on equity (ROE) is 29.23%. Based on these metrics, Watervan Corporation is creating value for its shareholders.Explanation:To calculateWatervan Corporation'seconomic value added(EVA), we need to determine its net operating profit after taxes (NOPAT) and its cost of capital.Given information:Net income: $75.05 millionInterest expense: $13.00 millionTaxes: $19.95 millionCost of capital: 8.5%Step 1: Calculate NOPATNOPAT = Net income + Interest expense * (1 - Tax rate)NOPAT = $75.05 million + $13.00 million * (1 - 19.95%)NOPAT = $75.05 million + $13.00 million * 0.8005NOPAT = $75.05 million + $10.40 millionNOPAT = $85.45 millionStep 2: Calculate EVAEVA = NOPAT - (Capital * Cost of capital)Capital = Total assets - Current liabilitiesCapital = $537 million - $158 millionCapital = $379 millionEVA = $85.45 million - ($379 million * 8.5%)EVA = $85.45 million - $32.215 millionEVA = $53.235 millionTherefore, Watervan Corporation's economic value added (EVA) is $53.235 million.To calculate the company'sreturn on capital(ROC), we need to divide its NOPAT by its capital and multiply by 100%.ROC = (NOPAT / Capital) * 100%ROC = ($85.45 million / $379 million) * 100%ROC = 0.2257 * 100%ROC = 22.57%Therefore, Watervan Corporation's return on capital (ROC) is 22.57%.To calculate the company'sreturn on equity(ROE), we need to divide its net income by itsshareholders' equity and multiply by 100%.ROE = (Net income / Shareholders' equity) * 100%ROE = ($75.05 million / $257 million) * 100%ROE = 0.2923 * 100%ROE = 29.23%Therefore, Watervan Corporation's return on equity (ROE) is 29.23%.Based on the positive economic value added (EVA) and the higher return on capital (ROC) and return on equity (ROE) compared to the cost of capital, Watervan Corporation is creating value for its shareholders.Learn more aboutcalculating economic value added (eva), return on capital, return on equity, and value creation for shareholdershere:brainly.com/question/32742920#SPJ11...