Here are simplified financial statements for Watervan Corporation:
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INCOME STATEMENT
(Figures in $ millions)
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Net sales
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$ 895
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Cost of goods sold
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755
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Depreciation
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45
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Earnings before interest and taxes (EBIT)
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$ 95
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Interest expense
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26
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Income before tax
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$ 69
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Taxes
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33
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Net income
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$ 36
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BALANCE SHEET
(Figures in $ millions)
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End of Year
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Start of Year
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Assets
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|
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Current assets
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$ 383
|
$ 340
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Long-term assets
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$ 286
|
$ 236
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Total assets
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$ 669
|
$ 576
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Liabilities and shareholders' equity
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|
|
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Current liabilities
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$ 208
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$ 171
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Long-term debt
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$ 122
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$ 135
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Shareholders' equity
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$ 339
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$ 270
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Total liabilities and shareholders' equity
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$ 669
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$ 576
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The company's cost of capital is 7.50%.
a. Calculate Watervan's economic value added (EVA)
b. What is the company's return on capital? (Use start-of-year rather than average capital.)
c. What is its return on equity? (Use start-of-year rather than average equity.)
d. Is the company creating value for its shareholders?