Question

17. Casey Motors recently reported the following information: • Net income - $600,000. • Tax rate=40% • Interest expense - $200,000 • Total investor-supplied operating capital employed 59 million • After-tax cost of capital (or WACC) -10% 1 What is the company's EVA? (Hint: Compute ERT; use that to find EBIT; use thar to find NOPAT, and finally find EVA). a. $200,000 b. SO c. -S180,000 d. -$300,000 Hayes corporation has $300 million of common equity and 6 million shares of common stock outstanding. If Hayes market added (MVA) is $162 million, what is the company's stock price? a $33 19. b. $67 c. $77 d. $87 Superior Medical System's 2005 balance sheet showed total common equity (book value) of $2,050,000. The company had 100,000 shares of stock outstanding which sold at a price of $57.25 per share. By how much did the firm's market value and book value differ on a per share basis? a. S 39.50 b. S 38.25 c. $ 37.75 d. $ 36.75 20. Portland Inc. recently reported an EBITDA of $7.500,000 and net income of $1,800,000. It has $2,000,000 of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization? (Hint: work the income statement from bottom up) a. $2.000.000 b. $2,500,000 c. $3,500,000 d. $4,000,000 21. Temple Square Inc. reported that its retained earnings for 2009 were $490.000. In its 2010 financial statements, it reported $60,000 of net income, and it ended 2010 with $510,000 of retained earnings. How much were paid as dividends to shareholders during 2010? a. $40,000 b. $30,000 c. $25,000 d. $20,000

Answer 1

17.

Compute the net operating profit after taxes (NOPAT), using the equation as shown below:

NOPAT = Net income + {Interest expenses*(1 – Tax rate)}

              = $600,000 + {$200,000*(1 – 0.40)}

              = $600,000 + $120,000

              = $720,000

Hence, the NOPAT is $720,000.

Compute the economic value added (EVA), using the equation as shown below:

EVA = NOPAT – (Capital employed*WACC)

         = $720,000 – ($9,000,000*10%)

         = $720,000 - $900,000

         = - $180,000

Hence, the EVA is -$180,000.

Answer 2

WACC = (NOPAT-WACC*CAPITAL INVESTED)

NET INCOME MEANS OPERATING PROFIT-TAX 

NET INCOME ALREADY GIVEN IN THIS QUESTION AND CAPITAL STRUCTURE NOT GIVEN IN THIS SITUATION YOU'RE TREATED AS A OPERATING CAPITAL 

EVA=600,000-(9%X9,000,000)

EVA=-300,000