Answer:
Hi, your question has incomplete information. However important formulas and explanations are given below.
EVA
The aim of EVA is to produce an overall financial measure that encourages senior managers to concentrate on the delivery of shareholder value.
EVA = Conventional divisional profit ± accounting adjustments - cost of capital charge on divisional assets
Return on capital
Return on capital measures the profitability of the firm as a whole in relation to the capital employed
Return on capital = Net Operating Profit After Tax / Invested Capital
Return on equity
Return on equity measures the Return Earned on the Owner`s Investment in the Company
Return on equity = Net Income / Total Shareholders Funds
Explanation:
Answer:
a. Calculate Watervan’s economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
economic value added = after-tax operating income - (cost of capital x total capitalization) = $70.80 - $32.05 = $38.75
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.)
return on capital = net profit before taxes / total capitalization = $97 / $377 = 25.73%
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.)
return on equity = net income / shareholders' equity = $63 / $256 = 24.61%
d. Is the company creating value for its shareholders
Yes, this company creates value for its shareholders because it is generating profits and increasing retained earnings which in turn increase stockholders' equity = more shareholders' wealth.
