Quantitative Problem: Rosnan Industries\' 2013 and 2012 balance sheets and incom

Question

Quantitative Problem: Rosnan Industries' 2013 and 2012 balance sheets and income statements are shown below.

Using the financial statements above, what is Rosnan's 2013 market value added (MVA)? Round your answer to the nearest dollar. Do not round intermediate calculations.

$

Using the financial statements given earlier, what is Rosnan's 2013 economic value added (EVA)? Round your answer to the nearest cent. Do not round intermediate calculations.

$

Balance Sheets: 2013 2012 Cash and equivalents $100   $85   Accounts receivable 275   200   Inventories 375   250         Total current assets $750   $635   Net plant and equipment 2,000   1,490   Total assets $2,750   $2,125   Accounts payable $150   $85   Accruals 75   50   Notes payable 150   75         Total current liabilities $375   $210   Long-term debt 450   290   Common stock 1,225   1,225   Retained earnings 700   400   Total liabilities and equity $2,750   $2,125  

Explanation / Answer

1.

Formula of MVA

MVA = (Shares outstanding X Stock Price) - Total common equity)

As per the given problem, let us put the values

MVA = (160 X 22.73) - (1225+700)

MVA = 3636.8 - 1925

MVA = $1711 .......Answer

2.

EVA = EBIT (1-T) - (Total Invested capital X WACC)

Let us find total invested caiptal first;

Notes payable = 75

Long term Debt = 290

Common equity = 1225

Hence Total Invested capital is = 1590

Putting in formula now,

EVA = 650 (1-0.6) - (1590X0.11)

EVA = 260 - 174.9

EVA = $85 .....Answer

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