Question: Refer to the preceding problem for reported financial statement data for Astro, Inc. Required 1. Prepare, using the financing approach, an estimate of EVA

Refer to the preceding problem for reported financial statement data for Astro, Inc.

Required

1. Prepare, using the financing approach, an estimate of EVA ® NOPAT. In addition to the above data, you’ve discovered 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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Students should understand that EVA is an approximation of an entitys true ie economic profits for a period This measure of profitability is defined as the difference between the entitys NOPAT net ope... View full answer

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