EVA® NOPAT and EVA® Capital: Operating Approach You are provided with the following financial statement information from Astro, Inc. for its most recent fiscal year.
Statement of Financial Position (Balance Sheet) End of Year(000s) | |
Assets |
|
Cash | $35 |
Net Accounts Receivable (A/R) | 190 |
Inventory | 190 |
Other current assets | 95 |
Total current assets | $510 |
Property, plant, and equipment (net) | 605 |
Other long-term assets | 120 |
Total assets | $1,235 |
Liabilities and Stockholders’ Equity |
|
Short-term debt (@10%) | $100 |
Accounts payable | 150 |
Income taxes payable | 20 |
Other current liabilities | 200 |
Total current liabilities | $470 |
Long-term debt (8%) | 150 |
Other long-term liabilities | 120 |
Total liabilities | $ 740 |
Deferred income taxes | 70 |
Common equity | 425 |
Total liabilities and shareholders’ equity | $1,235 |
The statement of income for the company for the year just ended is as follows:
Statement of Income Most Recent Year (000s) | |
Net sales | $2,000 |
Cost of goods sold (CGS) | 1,670 |
Gross margin | 330 |
Less: SG&A costs | 185 |
Depreciation | 35 |
Other operating expenses | 50 |
Total expenses | 270 |
Net operating profit | 60 |
Less: Interest expense | 22 |
Plus: Other income | 12 |
Income before tax | 50 |
Less: Income tax (@ 40%) | 20 |
Net profit after tax | $ 30 |
Assume a weighted-average cost of capital (WACC) of 10.7% and an income tax rate of 40%.
Required
1. Prepare, using the operating approach, an estimate of EVA® NOPAT. In addition to the above data, you discovered the following: increase during the year of the LIFO reserve, $2; imputed interest expense on noncapitalized leases, $4; and increase in deferred tax liability during the year, $5. (Hint: The correct answer is $53; the amount of cash taxes paid on operating profit during the year is $25.) What is the rationale for the various adjustments you made to the company’s reported income statement?
2. Prepare, using the operating approach, an estimate of EVA® capital. (Hint: The correct answer is $925.) In addition to the above information, you note the following: end-of-year value of the LIFO reserve, $10; and present value of noncapitalized leases, $50. What is the rationale for the adjustments you made to reported balance sheet amounts in order to estimate EVA® capital?
3. Given the company’s WACC, what is the estimated EVA® for the year? How do you interpret this figure?
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.