Question: Refer to Problem 19-44 for reported financial statement data for Nimrod, Inc. Problem 19-44 Statement of Financial Position (Balance Sheet) End of Year (000s) Assets
Refer to Problem 19-44 for reported financial statement data for Nimrod, Inc.
Problem 19-44
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 financing approach, an estimate of EVA® NOPAT. In addition to the above data, you discover 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. What is the rationale for the various adjustments you made to the company's reported income statement?
2. Prepare, using the financing approach, an estimate of EVA® capital. 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?
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Given Data Statement of Financial Position End of Year 000s Assets Cash 35 Net accounts receivable AR 190 Inventory 190 Other current assets 95 Total current assets 510 Property plant and equipment ne... View full answer
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