The Hock Seng Lee (HSL) Group is principally engaged in marine engineering and civil engineering, construction contractor
Question:
The Hock Seng Lee (HSL) Group is principally engaged in marine engineering and civil engineering, construction contractor as well as property development. There has been no significant change in the nature of these activities during the financial year. Recently, it has been the practice of the company to use Economic Value Added (EVA) as a tool to measure the quality of management performance.
For HSL Group, for the years 2020 and 2021 respectively, the risk premium rate was 5.0% in both years with the treasury bond rate of interest at 3.0% and 3.5% per annum. The Group borrowings cost on average was 6.5% and 7.5 % per annum, for 2020 and 2021 respectively. Assume that the corporation tax is maintained at 24 percent and ignore the assumptions made on the profit and cash flow levels of the company. Study the financial statements of the annual report of HSL Group Berhad, 2021 (page 36 to page 37) and answer the following questions;
Determine the total invested capital, earnings before discounting for a capital charge, the weighted average cost of capital (WACC) and the economic value added (EVA) of Group HSL Berhad for 2020 & 2021 respectively. The company has consistently measured total assets based on total equity and interest-bearing liabilities. All market values are assumed to be the same as par value.
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw