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12345 [234]
3 years ago
8

Here are simplified financial statements for Watervan Corporation. INCOME STATEMENT (Figures in $millions)Net sales $881Cost of

goods sold 741Depreciation 31Earnings before interest and taxes (EBIT) $109Interest before tax $97Taxes 34Net income $63 BALANCE SHEET (Figures in $millions) End of Year Start of YearAssetsCurrent assets $369 $312Long-term assets 258 222Total assets $627 $534Liabilities and shareholders; equityCurrent liabilities $194 $157Long-term debt 108 121Shareholders' equity 325 256Total liabilities and shareholders' equity $627 $534The company's cost of capital is 8.5%a. Calculate Watervan's economic value added (EVA). Do not round intermediate calculations. Enter answer in millions rounded 2 decimal places.Economic value added $_____ millionb. What is the company's return on capital? Use start of year rather than average capital. Do not round intermediate calculations. Enter answer as a percent rounded to 2 decimal places.Return on capital _____%c. What is its return on equity? Use start of year rather than average equity. Enter answer as a percent rounded to 2 decimal places.Return on equity _____%
Business
1 answer:
Vlad1618 [11]3 years ago
3 0

Answer:

1. Economic value added = $34.04 million

2. Company's return on capital = 18.79%

3. Return on equity = 24.61%

Explanation:

1. Economic value added (EVA) = NOPAT - capital charge

Where;

NOPAT = EBIT × ( 1 - tax rate )

Tax rate = Taxes / Income before taxes

= 34 / 97 * 100

= 35%

NOPAT = 109 × ( 1 - 35% )

= 70.85

But,

Capital charge = Capital employed × Cost of capital = (Equity + Interest bearing Liabilities) × Cost of capital

= (325 + 108) × 8.5%

= 433 × 8.5%

= 36.81

Therefore,

Economic value added(EVA)

= 70.85 - 36.81

= $34.04 million

2. Company's return on capital(using start of year equity)

= NOPAT / (Total assets - Current liabilities)

= 70.85 / (534 - 157)

= 70.85 / 377

= 0.1879

= 18.79%

Return on capital is 18.79%

3. Return on equity(using start of year equity) = Net income / Shareholder's equity

= 63 / 256

= 1.125

= 24.61%

Return on equity is 24.61%

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Explanation:

Question 27

If Wheat Company had used the FIFO inventory method, income before income taxes would have been $75,000 higher in the current year. As inventory is an asset to the company. Therefore the $75,000 in inventory would have increased the company's asset and increasing the income before taxes.

Question 28

Other things held constant, which of the following will NOT affect the current ratio, assuming an initial Not yet current ratio greater than 1.0?

C. Accounts receivable are collected in cash.

Current ratio measures a company's ability to pay short-term obligations as at when due. It indicates that a company can manage its debts and other payable when their current assets is well managed.

It is calculated as Current Asset/ Current Liability. A ratio of 1 and above is the best meaning that a company an manage its debts obligations well.

3 0
3 years ago
Read 2 more answers
When the trial balance extracted from the books of Keman Enterprises at the year-end failed to balance, the difference was place
Ugo [173]

Answer:

The answer is option (A) Dr 4,800

Explanation:

Solution

From the given question, the prepaid insurance normally is having a debit  balance.

When it is brought forward to next year, this GH₵ 2,400 has to be cancelled once by debiting to suspense account.

Also. it want 2400 to credit the balance in prepaid insurance ledger, it need or require to be credited and debited to suspense account with 2400 balance.

Now, this combined debit to suspense account will result to 4800 (2400 +2400).

8 0
3 years ago
During March, Patt, Inc. purchases and uses 8,800 pounds of materials costing $35,640 to make 4,000 tiles. Patt's standard mater
omeli [17]

Answer and Explanation:

The computation is shown below:

Total material cost variance

= (Standard quantity × standard price) - (actual quantity × actual price)

= (4,000 tiles × 2 pounds of material × $4) - (8,800 pounds × $35,640 ÷ 8,800 pounds)

= (8,000 pounds × $4) - ($8,800 pounds × $4.05)

= $3,640 unfavorable

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= 8,800 × ($4 - $4.05)

= $440 unfavorable

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= Standard Price × (Standard Quantity - Actual Quantity)

= $4 × (8,000 pounds - 8,800 pounds)

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The favorable variance is that in which the standard cost is more than the actual cost and the inverse goes to unfavorable variance

4 0
3 years ago
Assuming that taxes and net exports are zero, government purchases of goods and services are equal to $12, and gross private dom
levacccp [35]

Answer:

GDP= $22

Explanation:

The groos domestic product (GDP) formula is:

GDP= Consumption (C)+ Investment (I)+ Government expenditure (G)+ Net exports (exports-imports)

The problem gives the following information:

G= $12

I=$10

X-M= $0

We do not have information about consumption, then we assume is zero.

GDP= $0+$10+$12+$0

GDP=$22

7 0
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what is nbetter fender gibson or danelectro guitars. (in your opinion). I ALREADY HAVE MINE DANELECTRO ALL THE WAY.
Nadusha1986 [10]

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Danelectro Guitars

Explanation:

They are just cool.

5 0
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